Q2 2024 HEICO Corporation Earnings Call

Speaker Change: [music].

Operator: Welcome to the HEICO Corporation second quarter 2024 financial results call. My name is Samara, and I will be your operator for today's call.

Welcome to the HEICO Corporation second quarter 'twenty 'twenty four financial results call. My name is Tamara and I will be your operator for today's call.

Operator: 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.

Speaker Change: 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.

Speaker Change: Actors that could cause such differences include the severity magnitude and duration of public health threats, such as the COVID-19 pandemic hi.

Operator: 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; and 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 foreign customers, or Competition from Existing and New Competitors, which could reduce our sales.

Speaker Change: 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 goods and services.

Speaker Change: 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 it.

Speaker Change: Existing and new competitors, which could reduce our sales our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth.

Operator: 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 applicable domestic and or foreign governmental approvals and achieve operating synergies from acquired businesses, Customer Credit Risk, Interest, Foreign Currency Exchange, and Income Tax Rates, and Economic Conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our costs and revenues.

Speaker Change: 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 foreign governmental approvals and achieve operating synergies from acquired businesses.

Speaker Change: 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 cost.

Speaker Change: Revenues.

Operator: 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 very much, Samara.

Speaker Change: 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.

Speaker Change: Whether as a result of new information future events or otherwise except to the extent required by applicable law.

Speaker Change: I now turn the call over to Lawrence Mendelsohn, Heico's, Chairman and Chief Executive Officer.

Laurans A. Mendelson: And good morning to everyone on the call. We thank you for joining us, and we welcome you to this HEICO second quarter fiscal 24 earnings announcement teleconference. I'm 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, Victor Mendelson, HEICO's Co-President and President of HEICO's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and CFO.

Speaker Change: Thank you very much Tamara and good morning to everyone on the call. We thank you for joining us and we welcome you to this HEICO second quarter fiscal 'twenty four earnings announcement teleconference, I'm, 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.

Speaker Change: Victor Mendelson Heico's co President and President of Heico's, Electronic technologies group, and Carlos Macau, Our executive Vice President and CFO.

Laurans A. Mendelson: Before reviewing our operating results in detail, I would like to take a moment to thank all of HEICO's talented team members for delivering another excellent quarter. Your focus on customers and operational excellence has provided record quarterly results for our shareholders, and I remain extremely optimistic about HEICO's future. I also want to thank everyone on the call, the HEICO team members, and our customers and vendors who themselves or family members have served this great country, some of whom have made the ultimate sacrifice for our freedom. I hope you have these patriots in your thoughts on Memorial Day.

Speaker Change: Before reviewing our operating results in detail I would like to take a moment to thank all of heico's talented team members for delivering another excellent quarter. Your focus on customers and operational excellence has provided record quarterly results for our share.

Speaker Change: Holders and I remain extremely optimistic about heico's future I also wanted to thank everyone on the call the HEICO team members and our customers and vendors who themselves or family members have.

Speaker Change: Served this great country, some of whom made the ultimate sacrifice for our freedom.

Speaker Change: I Hope you had.

Speaker Change: These patriots in your thoughts on Memorial day.

Laurans A. Mendelson: HEICO is proud of the role we play in support of the armed forces of the United States and our allies. I will summarize the highlights of the second quarter fiscal 24 results. Consolidated operating income and net sales in the second quarter of fiscal 24 represent record results for HEICO and improved by 33% and 39%, respectively, as compared to the second quarter of fiscal 23. The results mainly reflect 21% organic net sales growth in the flight support's aftermarket replacement parts and the impact from our profitable fiscal 23 and 24 acquisitions, as well as improved results at ETG. Consolidated Net Income increased 17% to a record $123.1 million, or $0.88 per diluted share, in the second quarter of fiscal 24.

Speaker Change: <unk> is proud of the role we play in support of the armed forces of the United States and our allies.

Laurans A. Mendelson: And that was up from $105.1 million, or $0.76 per diluted share, in the second quarter of fiscal 23. Consolidated EBITDA increased 35%, to $252.4 million, in the second quarter of fiscal 24. And that was up from $187.2 million in the second quarter of fiscal 23. Our consolidated EBITDA margin was a very healthy 26.4% in the second quarter of fiscal 24. The Flight Support Group set all-time quarterly net sales and operating income records in the second quarter of fiscal 24, improving by an enormous 65% and 49%, respectively, over the second quarter of fiscal 23.

Speaker Change: I will summarize the highlights of the second quarter of fiscal 'twenty four results.

Speaker Change: Consolidated operating income and net sales in the second quarter of fiscal 'twenty four represent record results for HEICO.

Speaker Change: And improved by 33% and 39%, respectively as compared to the second quarter of fiscal 'twenty three.

Speaker Change: The results, mainly reflect 21% organic net sales growth in the flight support aftermarket replacement parts.

Speaker Change: And the impact from our profitable fiscal 'twenty, three and 'twenty four acquisitions as well as improved results at E. T G.

Speaker Change: Consolidated net income increased 17% to a record $123 1 million or 88 cents per diluted share in the second quarter of fiscal 'twenty four and that was up from 105 1 million or 70.

Speaker Change: Six cents per diluted share in the second quarter of fiscal 'twenty three.

Speaker Change: Consolidated EBITDA increased 35% to $250 million to $4 million in the second quarter of fiscal 'twenty four.

Speaker Change: That was up from $187 2 million in the second quarter of fiscal 'twenty three.

Speaker Change: Our consolidated EBITDA margin was a very healthy 26.4% in the second quarter of fiscal 'twenty four.

Speaker Change: The flight support group set all time quarterly net sales and operating income records in the second quarter of fiscal 'twenty four.

Speaker Change: Proving and then norm is 65% and 49% respectively over the second quarter of fiscal 'twenty three.

Laurans A. Mendelson: The increases principally reflect the impact of our profitable fiscal 23 and 24 acquisitions and strong 12% organic growth, mainly attributable to increased demand for flight support group aftermarket replacement parts, end repair, and overhaul parts and services. Our net debt to EBITDA ratio was 2.45 times as of April 30th, 2024, and that was down from 3.04 times as of October 31, 2023.

Speaker Change: The increases principally reflect the impact from our profitable fiscal 'twenty, three 'twenty four acquisitions and strong 12%.

Speaker Change: Organic growth, mainly attributable to increased demand for flight support group aftermarket replacement parts and repair and overhaul parts and services.

Speaker Change: Our net debt to EBITDA ratio was 2.45 times as of April 30th 24.

Speaker Change: And that was down from 3.04 times as of October 31, 23.

Laurans A. Mendelson: We remain on track to lower our leverage to two times within 12 to 18 months post the WENCOR acquisition. Cash flow provided by operating activities increased 82% to $141.1 million in the second quarter of Fiscal 24.

Speaker Change: We remain on track to lower our leverage to two times within 12 to 18 months post the <unk> acquisition.

Speaker Change: Cash flow provided by operating.

Speaker Change: Activities increased 82% to $141 $1 million in the second quarter of fiscal 2000 tour.

Laurans A. Mendelson: And that was up from $77.8 million in the second quarter of Fiscal 23. At this time, I would like to introduce Eric Mendelson, co-president of HEICO and the president of HEICO's flight support group, and he will discuss the second quarter results of the flight support group. Thank you very much.

Speaker Change: And that was up from $77 8 million in the second quarter of fiscal 'twenty three.

Eric A. Mendelson: The flight support group's net sales increased 65% to a record $647.2 million in the second quarter of fiscal 24, up from $392.2 million in the second quarter of fiscal 23. The net sales increase reflects the impact of our fiscal 23 and 24 acquisitions and strong 12% organic growth. The organic net sales growth mainly reflects 21% organic growth within our aftermarket replacement parts product line. Both the LEGACY HEICO and WENCOR operations continue to exceed our expectations, and the results prove that WEN Corp was an excellent investment for HEICO, both in terms of HEICO's and WENCOR's entrepreneurial culture.

Speaker Change: At this time I would like to introduce Eric Mendelson co president of HEICO and the President of Heico's flight support group and he will discuss the second quarter results of the flight support group.

Eric A. Mendelson: Thank you very much.

Eric A. Mendelson: The flight support group's net sales increased 65% to a record $647 2 million in the second quarter of fiscal 'twenty four.

Eric A. Mendelson: From $392 2 million in the second quarter of fiscal 'twenty three.

Eric A. Mendelson: Net sales increase reflects the impact from our fiscal 'twenty, three and 'twenty four acquisitions and strong 12% organic growth.

Eric A. Mendelson: Organic net sales growth, mainly reflects 21% organic growth within our aftermarket replacement parts product line.

Eric A. Mendelson: Both the legacy height.

Eric A. Mendelson: And when core operations continued to exceed our expectations and the results prove that when <unk> was an excellent investment for HEICO.

Eric A. Mendelson: Both heico's <unk> entrepreneurial culture, and our record of producing high quality products continues to produce wins in the marketplace.

Eric A. Mendelson: And a record of producing high quality products continues to produce wins in the market. Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs. Consistent with HEICO's time-tested and well-known operating philosophy, we continue to operate WENCOR as a standalone business operation.

Eric A. Mendelson: Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs.

Eric A. Mendelson: Consistent with HEICO is time tested and well known operating philosophy, we continue to operate <unk> as a standalone business operation.

Eric A. Mendelson: However, we have made good progress working together and serving our customers. Some examples of how we are now working together include: The utilization of all HEICO and Wincore PMAs and DERs at all repair stations; commercial and defense aftermarket sales cooperation where appropriate; OneCore e-commerce platform lists all HEICO non-competitive PMAs.

Eric A. Mendelson: However, we have made good progress working together and serving our customers.

Eric A. Mendelson: Some examples of how we are now working together include the.

Eric A. Mendelson: The utilization of all HEICO and when core PMA and D ours at all repair stations.

Eric A. Mendelson: Commercial and defense aftermarket sales cooperation where appropriate.

Eric A. Mendelson: When core E Commerce platform lists all HEICO noncompetitive PMA is.

Eric A. Mendelson: Wayne Corp is utilizing HEICO's manufacturing base to quote new products. Engineering and regulatory cooperation that we expect to yield tremendous benefits for our company and Shared Vesting Class Vendors. The Fight Support Group's operating income increased 49% to a record $148.9 million in the second quarter of fiscal 24, up from $99.9 million in the second quarter of fiscal 23. The operating income increase principally reflects the previously mentioned net sales growth, partially offset by higher, as expected, intangible asset amortization expense due to the Wencore acquisition. The Prior Year Impact from the Amendment and Termination of a Contingent Consideration Agreement and Increased Inventory Obsolescence Expense

Eric A. Mendelson: When core is utilizing heico's manufacturing base to quote new products.

Eric A. Mendelson: Engineering and regulatory cooperation that we expect to yield tremendous benefits for our company and.

Eric A. Mendelson: And sharing best in class vendors.

Eric A. Mendelson: The flight support group's operating income increased 49% to a record $148 9 million in the second quarter of fiscal 'twenty four up from $99 9 million in the second quarter of fiscal 'twenty three.

Eric A. Mendelson: The operating income increase principally reflects the previously mentioned net sales growth, partially offset by higher as expected intangible asset amortization expense due to the <unk> acquisition the.

Eric A. Mendelson: The prior year impact from the amendment and termination of the contingent consideration agreement.

An increased inventory obsolescence expense.

Eric A. Mendelson: The Flight Support Group's operating margin was 23% in the second quarter of Fiscal 24, as compared to 25.5% in the second quarter of Fiscal 23. Given that acquisition-related intangibles amortization in the second quarter of 2024 consumed around 280 basis points of our operating margin, the FSG cash margin before that amortization, otherwise known as EBITDA, was around 25.8 percent, which is excellent in absolute terms, and we are extremely pleased with it The decrease in operating income as a percentage of net sales principally reflects the prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement and the previously mentioned higher intangible asset amortization, partially offset by lower performance-based compensation expense as a percentage of net sales.

Eric A. Mendelson: The flight support group's operating margin was 23% in the second quarter of fiscal 'twenty four as compared to 25, 5% in the second quarter of fiscal 'twenty three.

Eric A. Mendelson: Given that acquisition related intangibles amortization in the second quarter of.

Eric A. Mendelson: 2024 consumed around 280 basis points of our operating margin the SSG cash margin before that amortization otherwise known as EBITDA was around 25, 8%, which is excellent in absolute terms and we are.

Eric A. Mendelson: STREAMWAY pleased with it.

Eric A. Mendelson: The decrease in operating income as a percentage of net sales principally reflects the prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement and the previously mentioned higher intangible asset amortization expense, partially offset by.

Eric A. Mendelson: Lower performance based compensation expense as a percentage of net sales.

Victor H. Mendelson: Now, I would like to introduce Victor Mendelson, co-president of HEICO and president of HEICO's Electronic Technologies Group, to discuss the second quarter results of the Electronic Technologies Group. Thank you, Eric. The Electronic Technologies Group's net sales increased 6% to $319.3 million in the second quarter of fiscal 24, up from $301.8 million in the second quarter of fiscal 23.

Speaker Change: Now I would like to introduce Victor Mendelson co president of HEICO and President of Heico's Electronic technologies group to discuss the second quarter results of the electronic technologies group.

Victor H. Mendelson: Thank you Eric the electronic technologies group's net sales increased 6% to $319 $3 million in the second quarter of fiscal 'twenty four up from $301 8 million in the second quarter of fiscal 'twenty three.

Victor H. Mendelson: The net sales increase is attributable to 4% organic growth, mainly reflecting double-digit organic net sales growth of defense and aerospace products, partially offset by lower organic net sales of other electronic products. We were very pleased to see this core ETG and market gain traction in the past quarter even sooner than we had previously expected, as we previously thought it would more likely be an early third quarter event when we would see that turn up.

Victor H. Mendelson: The net sales increase is attributable to 4% organic growth, mainly reflecting double digit organic net sales growth of defense and aerospace products, partially offset by lower organic net sales of other electronic products.

Victor H. Mendelson: We're very pleased to see this core <unk> and market gain traction in the past quarter, even sooner than we had previously expected as we previously thought it would more likely be in early third quarter event, when we would see that turned out.

Victor H. Mendelson: While we continue to expect quarterly variation and lumpiness in our defense net sales, we believe the overall trend over the long term will remain positive. The Electronic Technologies Group's operating income was $75.3 million in the second quarter of fiscal 24, up from $68 million in the second quarter of fiscal 23. The operating income increase principally reflects an improved gross profit margin and the previously mentioned net sales growth. The improved gross profit margin principally reflects increased net sales of defense products partially offset by our expected decreased net sales of other electronics products. Electronic Technologies Group's operating margin improved to 23.6% in the second quarter of Fiscal 24, up from 22.5% in the second quarter of Fiscal 23.

Victor H. Mendelson: While we continue to expect quarterly variation lumpiness in our defense net sales we believe the overall trend over the long term will remain positive.

Victor H. Mendelson: The electronic technologies groups operating income was $75 $3 million in the second quarter of fiscal 24 up from $68 million in the second quarter of fiscal 'twenty three the operating income increase principally reflects an improved gross profit margin and the previously mentioned net sales growth.

Victor H. Mendelson: The improved gross profit margin principally reflects increased net sales of defense products, partially offset by our expected decreased other electronics products net sales.

Victor H. Mendelson: The electronic technologies group's operating margin improved to 23, 6% in the second quarter fiscal 24 up from 22, 5% in the second quarter fiscal 'twenty three.

Victor H. Mendelson: Given that acquisition-related intangibles amortization consumes around 400 basis points of our operating margin, the ETG cash margin before that amortization was around 27.5%, which is excellent in absolute terms, and we are very pleased with it. The operating margin increase principally reflects the previously mentioned gross... Profit Margin and Net Sales Growth Partially Offset by Lower SG&A Efficiency. Growth in net sales of defense and commercial aerospace product sales contributed to a favorable product mix during the second quarter, and we note that we finished the quarter with a record order back. I will turn the call back over to Larry now.

Victor H. Mendelson: Given that acquisition related intangibles amortization consumes around 400 basis points of our operating margin. The ETB cash margin before that amortization was around 27, 5%, which is excellent in absolute terms and we are very pleased with it.

Victor H. Mendelson: The operating margin increased principally reflect reflects the previously mentioned gross.

Victor H. Mendelson: Profit margin and net sales growth, partially offset by lower SG&A efficiencies.

Victor H. Mendelson: Growth in net sales of defense and commercial aerospace product sales contributed to a favorable product mix during the second quarter and we note that we finished the quarter with a record order backlog.

Speaker Change: I'll turn the call back over to Larry levels.

Laurans A. Mendelson: Thank you, Victor. Now for the outlook. As we look ahead to the remainder of fiscal 24, we continue to anticipate net sales growth in both FSG 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 remain optimistic about ETG's opportunity to expand and grow its net sales of defense-related products over the next six months of fiscal 24, and that is supported by a strong backlog.

Laurans A. Mendelson: Thank you Victor.

Larry: Now for the outlook as we look ahead to the remainder of fiscal 'twenty. Four we continue to anticipate net sales growth in both SSG and atg, principally driven by contributions from our fiscal 'twenty, three and 'twenty four acquisitions as well as demand for.

Laurans A. Mendelson: The majority of our products.

Laurans A. Mendelson: Notably we remain optimistic on the <unk> opportunity to expand and grow its net sales of defense related products over the next six months with fiscal 'twenty four and that is supported by a strong backlog.

Laurans A. Mendelson: Additionally, we plan to continue our commitment to developing new products and services and further market penetration while maintaining our financial strength and flexibility. In closing, I would like to thank our dedicated and loyal team members for their continued support and commitment to HEICO.

Laurans A. Mendelson: Additionally, we plan to continue our commitment to developing new products and services and further market penetration, while maintaining our financial strength and flexibility.

Laurans A. Mendelson: In closing I would like to thank our dedicated and loyal team members for their continued support and commitment to high growth.

Laurans A. Mendelson: Our dedication to customers, team members, and the production of high-quality, highly-engineered niche products continues to be a winning strategy in the marketplace. The end markets we serve remain very healthy, and I'm highly optimistic about HEICO's future. Thanks for all you do to make HEICO a great company. And now I would like to open the floor for questions. 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.

Laurans A. Mendelson: Our dedication to customers team members and the production of high quality highly engineered niche products continues to be a winning strategy in the marketplace.

Laurans A. Mendelson: The end markets we serve.

Laurans A. Mendelson: A very highly.

Laurans A. Mendelson: Highly optimistic about.

Laurans A. Mendelson: Thanks for all you do to make HEICO a great company.

Laurans A. Mendelson: And now I would like to.

Laurans A. Mendelson: Open the floor for questions.

Speaker Change: Thank you.

Speaker Change: I'd 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 pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Robert Spingarn with Mellie's. Go ahead. Hi. Good morning, Rob.

Speaker Change: Again press Star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

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

Robert Spingarn: Please go ahead, hi, good morning, everybody.

Speaker Change: Good morning, Rob.

Robert Spingarn: Congratulations on another excellent quarter. I wanted to dig into the businesses a little bit. So, Victor, I would start with you.

Robert Spingarn: Congrats on another excellent quarter I wanted to dig into the businesses a little bit so.

Speaker Change: Victor I would start with you and then Eric I have something for you as well.

Robert Spingarn:

Victor H. Mendelson: And then, Eric, I have something for you as well. But, Victor, in turn, you just talked about your margins in the mix improvement, and it sounds like the second half should be better, especially based on your prior comments. I think you were saying something like 24% for the full year. So that implies a step up here in the second half. And is that a good number for next year?

Robert Spingarn: But victor in terms of you just talked about your margins and the mix improvement and it sounds like the second half should be better, especially based on your prior comments.

Robert Spingarn: I think saying something like 24% for the full year, so that implies a step up here in the second half.

Speaker Change: And is that a is that a good number for next year in other words are we starting to move back towards the margins of a couple of years ago or does that depreciation keep us from getting there.

Victor H. Mendelson: In other words, are we starting to move back toward the margins of a couple of years ago, or does that depreciation keep us from getting there? Rob, I'm going to, I'm going to dive in here because I've had a bunch of conversations with analysts about this topic, maybe a little confusion. The 24% that's been battered around that, that is what we heard.

Speaker Change: Waving me Robert.

Rob: Rob I'm going to I'm going to dive in here, because I've had a bunch of conversations with analysts about this topic, maybe a little confusion the 24% that's been battered around that is what we aspire the segment's margin to elevate to I don't know that we'll get there for the full year being an average of 24%.

Victor H. Mendelson: I don't know that we'll get there for the full year being an average of 24%. My comments last quarter were that, yeah, my comments last quarter that as the defense came back, that would be accretive to our margin, which we expected to come in the second half. And I thought sometime during this fiscal year, we'd post a quarter at 24% plus.

Rob: My comments last quarter, where that yeah my.

Rob: My comments last quarter that is the defense came back that would be accretive to our margin, which we expected to come in the second half and I thought sometime during this fiscal year, we posted a quarter, 24% plusses and thats kind of where we're at.

Victor H. Mendelson: And that's kind of where we're at. Okay, thank you for clarifying that. Victor, I have a little bit more qualitative one then for you. And thinking about your data and microwave division, you've got ConnectTech there, which is one of NVIDIA's largest global hardware partners, and I wanted to see if you're seeing an acceleration in orders or RFPs there and other businesses within ETG to support all of this demand for data centers. Yeah, Rob.

Speaker Change: Okay. Thank you for clarifying that Victor I have a little bit more qualitative. One then for you and thinking about your data and microwave division you've got connect tech there, which is one of Nvidia as largest global hardware partners and wanted to see if youre seeing an acceleration in orders.

Speaker Change: Or rfps, there and other businesses within atg to support all of this demand for data centers.

Speaker Change: Yes.

Rob: Rob it's.

Victor H. Mendelson: Good question. Connect Tech definitely is seeing increased demand for data centers and for NVIDIA products, and I would expect that to continue. Now, while Connect Tech is not a huge part of our company, it's important, and it's a great business. In terms of the other companies, I don't think we're seeing a lot related to data centers. It's not a material part of our business in any way.

Rob: Good question, our connect Tech definitely has seen increased demand for data centers.

Speaker Change: And on the Nvidia products and I would expect that to continue in that while <unk> is not a huge part of our company, it's important and it's a great business.

Speaker Change: In terms of the other companies I don't think we're seeing a lot related to data centers.

Not.

Speaker Change: A material part of our business and atg.

Eric A. Mendelson: Okay, and then, Eric, just quickly, in your business, just, you know, outstanding organic aftermarket parts growth at 21%. And I've asked you this question in the past, but is there any way to parse that in terms of, You know, for lack of a better expression, sort of same store parts growth, you know, same customers, same parts, versus pricing versus market share gains? In other words, what's driving the 21%? Hi Rob. This is Eric.

Okay, and then Eric just.

Speaker Change: Quickly in your business.

Speaker Change: Outstanding organic aftermarket parts growth at 21% and I've asked you. This question in the past, but is there any way to parse.

Speaker Change: Is that in terms of.

Speaker Change: For lack of a better expression sort of same store parts growth same customers same parts versus pricing versus market share gains in other words, what is what's driving the 21%.

Eric A. Mendelson: So, as you know, we operate a very decentralized business, and in order to, I don't know the exact numbers, but I can tell you that it's very difficult to capture those numbers from all of the business units. It would be very difficult if we didn't capture that, so I don't know the exact numbers. A specific, finite answer to that. But I can tell you that we've gotten a little bit of pricing, as I've mentioned on prior calls, that our customers are very comfortable with our need to pass on our increases in the cost to manufacture and our cost to do business.

Eric A. Mendelson: Hi, Rob this is Eric.

So as you know we operate a very decentralized business and in order to do.

Eric A. Mendelson: Drive to capture those numbers from all of the business units.

Speaker Change: It would be very difficult and we don't capture that so I don't know the specific finite answer to that but I can tell you that we've gotten a little bit of pricing.

Speaker Change: As I've mentioned on prior calls that our customers are very comfortable with our need to pass on our increases in the cost to manufacture and our cost to do business and so in order to maintain our margins our prices have to go up by at least that amount. So.

Eric A. Mendelson: And so, in order to maintain our margins, our prices have to go up by at least that amount. So they understand that, and we've been able to do that. So there has been a certain amount in terms of price increases, you know, cost increases driving price increases. And then as far as the balance. You know, I don't have the, as I said, the specific numbers in front of me, but my guess is that it's probably, I don't know, half and half, half existing product, increased penetration, and half the sale of new products that hadn't been sold a year ago. That would be my guess.

Speaker Change: They understand that and we've been able to do that so there has been a certain amount in terms of price increase cost increase is driving price increases and then as far as the balance.

Speaker Change: I don't have these as I said the specific numbers in front of me, but my guess is that it's probably.

Speaker Change: I don't know half and half half existing product increased penetration and have the sale of new products that hadn't been solved in the year ago period.

Speaker Change: That would be.

Eric A. Mendelson: Some of the businesses do capture this, so I am able to see it for certain companies, and that's why I'm able to say what I just said, but that's sort of my feeling on it. We are not a price increase story. We're not driving these 21% returns, 21% increases, because we're raising prices 21%. My guess is that prices would be... you know, far less than a third, maybe even less than even less than a quarter of that number.

Speaker Change: Yes, some of the businesses do capture this so I am able to see it for certain companies.

Speaker Change: And that's why I'm able to say what I, just said, but thats sort of my my feeling on it but we are not a price increase story. So it's not we're not driving these 21% returns a 21% increase is because we are raising price 21%.

Speaker Change: Yes.

Speaker Change: My guess is that price would be.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: Borrow less than a third maybe even worse than even less than a quarter of that number so.

Speaker Change: Most of it would be volume increases.

Eric A. Mendelson: So most of it would be volume increments. Okay, and then just as a final sort of follow-up to that, we know that turnaround times for LEAP and GTF engines are significantly longer than they are for the prior-gen CFM56 and B2500, and part of this is the lack of approved DERs and PMAs for LEAP and GTF. So, knowing that these programs are earlier in their lifecycles, I wanted to see if you've started to work on those and what kind of ramp we might expect for HEICO's activity or FSG's activity on these two new engine types. So Rob, that's a great question.

Speaker Change: Okay, and then just as a final sort of follow up to that we know that turnaround times for leap in GTS engines are significantly longer than they are for the prior Gen. CFM 56, and <unk> 2500 part of this is the lack of approved Drs and PMA is for leap in GTS.

Speaker Change: Knowing that these programs are earlier in their lifecycle I wanted to see if you've started to work on those and what kind of ramp we might expect for heico's activity or <unk> activity on the Army's two new engine types.

Eric A. Mendelson: And as you know, we're very sensitive about giving specific information due to competitive reasons, as you can imagine, on any particular platform. But I can tell you that we have our eyes on, you know, new platform opportunities. Yes, we're willing to develop some products, you know, based on speculation that we'll be able to sell them, but we really need to make sure that the customers will be there and commit to us.

So that's a great question and as you know, we're very sensitive about giving specific information due to competitive reasons as you can imagine.

Speaker Change: On on any particular platform, but I can tell you that we have our eyes on.

Speaker Change: The new platform opportunities.

Eric A. Mendelson: You point out in your question the basis and the reason why we exist and why our customers want us to exist. And I agree with you. I think that if there were alternative sources of supply, the situation wouldn't be as dire as it is.

Speaker Change: Yes, we're willing to develop some product base.

Speaker Change: Based on speculation that we'll be able to sell it but we really need to make sure that the customers will be there and commit to US you pointed out in your question the basis and the reason why we exist and why our customers want us to exist and I agree with you I think that if there were alternative sources.

Speaker Change: Supply situation wouldn't be.

Speaker Change: Dire as it is.

Speaker Change: But at.

At the moment I'm going to have to pass on really where we are at that point, but needless to say, we've got people focused on all parts of the market.

Speaker Change: Fair enough thanks, everyone.

Rob: Thank you Rob.

Speaker Change: We will take our next question from Sheila <unk>.

Eric A. Mendelson: But at the moment, I'm going to have to pass on really where we are at that point. But needless to say, we've got people focused on all parts of the market. Fair enough. Thanks, everyone. Thank you, Rob. We'll take our next question from Sheila Kahyaoglu with Jefferies. Please go ahead. Good morning, everyone, and great quarter. Thank you so much. Good morning, Sheila.

Speaker Change: With Jefferies. Please go ahead.

Speaker Change: Yeah.

Speaker Change: Good morning, everyone and great quarter. Thank you so much.

Speaker Change: Good morning, Jeff.

Sheila Karin Kahyaoglu: Good morning. Eric, in your prepared remarks, you made a few comments about OneCore and how you're working together, and you're starting to see those results. I was wondering if you could quantify that in any way or how you're tracking that internally. Are you looking into parts sold to a certain customer and the increase as you combine the sales force? Maybe if you could elaborate there, I got it. So the answer is we don't specifically capture what those numbers are. It's very hard to capture.

Eric A. Mendelson: Good morning, Eric just.

Speaker Change: Your prepared remarks, you made a few comments about one quarter and how you're working together and you're starting to see those results I was wondering if you could quantify that.

Speaker Change: The way, our how youre tracking that internally are you looking into parts sold into a certain customer and the increase as you combine the sales force maybe if you could elaborate there.

Eric A. Mendelson: And what we're just trying to do is get the businesses to do what's in their interest and do what's in their customers' interest and combine HEICO and So, unfortunately, I don't have a number, but I can tell you that, you know, just breaking down, looking at the various areas, the use of the Wincore PMAs, the Wincore and HEICO PMAs and DERs at the repair stations is very You know, we always said that the product selections from both companies were extremely complementary. There was not a lot of overlap between them.

Speaker Change: Got it so.

Speaker Change: The answer is we don't specifically capture what those numbers are.

Speaker Change: It's very hard to capture and what we're just trying to do is get the businesses to do what's in their interest and do what's in their customers interest in the combined HEICO interest. So unfortunately I don't have.

Speaker Change: A number but I can tell you that.

Speaker Change: Just breaking down looking at the various areas the use of the <unk> PMA is the wanker and HEICO PMA and <unk> at the repair stations is very significant.

Speaker Change: We always said that the product.

Speaker Change: Selections from both companies were extreme was extremely complimentary there was not a lot of overlap. So you can just imagine when overhauling and al are you by being able to purchase each other's PMA, which to a certain extent was done pre acquisition, but by being able to use each other's <unk> and being able to.

Eric A. Mendelson: So you can just imagine when overhauling an LRU by being able to purchase each other's PMAs, which to a certain extent was done, you know, pre-acquisition, but by being able to use each other's DERs and being able to rationalize where we overhaul these products. Multiple repair stations that are obviously strong in certain areas and weaker in other areas, and they've been able to do that, by themselves and without They've been able to share the technology and figure out where it makes sense to swap product lines, and swap technologies. And as a result, it's really hard to measure this stuff.

Speaker Change: Rationalize where we overhaul these products we've got.

Speaker Change: Multiple repair stations.

Speaker Change: That are obviously strong in certain areas and weaker than other areas and they've been able to buy themselves and without.

Eric A. Mendelson: So we really don't even try. As far as aftermarket sales cooperation is concerned, I'd say that it's been excellent in terms of opening doors for each other. We've had meetings with airlines, who are so excited that we have the potential to put all of these increased numbers of products together and really provide a very, very unique service. And I can tell you the airline support has been extraordinary. We thought that it would be good, but it is really off the charts outstanding.

Speaker Change: Mi orchestrating this they've been able to share the technology and figure out where it makes sense to swap product line swap technologies.

Speaker Change: As a result, it's really hard to measure this stuff. So we we really don't even try.

Speaker Change: As far as the aftermarket sales cooperation I'd say, that's been excellent in terms of opening doors for each other we've had meetings with airlines who are so excited that we have the potential of putting all of these increased number of products together and really provide a very very unique.

Eric A. Mendelson: In terms of the defense aftermarket, we've already seen all sorts of examples where, on the international market, we were procuring parts from other sources. Now we're buying the legacy HEICO companies are buying them from the Wincor companies, and vice versa. So that's working extremely well. Having the, you know, we are able to see when we list the HEICO parts on the Wincor platform. We are able to see what it is. And that's been excellent and very good.

Speaker Change: Service and I can tell you the airline support has been extraordinary we thought that it would be good but it is really off the charts outstanding.

Speaker Change: In terms of the defense aftermarket we've already that there are all sorts of examples where in the international market. We were procuring parts from other sources now we're buying the legacy HEICO companies are buying it from when core companies and vice versa. So that's working extremely well.

Speaker Change: Having the we are able to see when we list the HEICO parts on the one core platform. We are able to see what that is that's been excellent and very good.

Speaker Change: In terms of manufacturing new products down the road when core has a very aggressive new product development program and having all of the 10 HEICO manufacturing businesses open to manufacture products.

Eric A. Mendelson: In terms of manufacturing new products down the road, Wincor has a very aggressive new product development program, and having all of the 10 HEICO manufacturing businesses open to manufacture products makes a lot of sense and is really going to benefit future courses that haven't benefited yet. In terms of engineering and regulatory cooperation, that's substantial. By pooling the talents of both businesses, we're able to get a lot more done. And I can tell you, in discussions with the FAA, they're very excited about that as well. And then, obviously, sharing best in class vendors.

Speaker Change: Makes a lot of sense and I think is really going to benefit future quarters that hasnt benefited.

Speaker Change: Benefited.

Speaker Change: Yet.

Speaker Change: Benefiting the numbers in terms of engineering and regulatory cooperation that substantial by pooling. The talents of both businesses were able to get a lot more done and I can tell you in discussions also with the FAA Theyre very excited about that is.

Speaker Change: Well and then obviously sharing best in class vendors. So I'm, sorry that I can't give you a specific number but I think you see it in our organic growth and in our margin expansion, which has frankly been.

Eric A. Mendelson: So I'm sorry that I can't give you a specific number, but I think you see it in our organic growth and in our margin expansion, which is, frankly, beyond where I thought we would. And I'm just so happy with the results that I'm letting them speak for themselves. No, I really appreciate that, Eric.

Speaker Change: And where I thought we would be.

Speaker Change: And I'm, just so happy with.

Speaker Change: With the result that.

Speaker Change: I'm letting them speak for themselves.

Sheila Karin Kahyaoglu: And then maybe I wanted to ask another one on price. I know you said the top line contribution is about a third or a quarter of your growth. How do we think about that net price impact? And should we see that the discount to the OEM narrow as it's widened throughout the last four years? Do we see that narrow, and do we see?

No really appreciate that Eric and then maybe I wanted to ask another one on price I know you said that top line contribution is about a third or a quarter of your growth.

Speaker Change: Do we think about that net price impact and should we see that.

Speaker Change: The discount to the OEM narrow as as its widened throughout the last four years or do we see that narrow and do we see.

Sheila Karin Kahyaoglu: The one core coming through, and all your efforts coming through with new product development and higher net prices, even as inflation comes down. Does that make sense?

Speaker Change: The one core coming through in all your efforts coming through with new product development and higher net price even as inflation comes down does that make sense no. Yes, I understand your question and I can tell you that our the.

Eric A. Mendelson: Yeah, I understand your question. And I can tell you that our the prices that we sell as a percentage of OEM, I would say are unfortunately at an all time low. So, the OEMs have raised prices faster than we have raised prices. We want to make sure that, you know, as I said, that we need to pass on, nobody wants a price increase and, you know, while it appears easy, I must say that I, you know, I understand, I know what it feels to walk in our salesfolk's shoes trying to get these price increases because even though costs are going up, nobody wants to take a price increase, especially when you, you know, when you're delivering so much value.

Speaker Change: Prices that we sell as a percentage of OEM I would say are unfortunately at an all time low.

So the Oems have raised prices faster than we have raised prices, we want to make sure that as I said that we need to pass on nobody wants to say a price increase and.

Speaker Change: While it appears easy I must say that.

Speaker Change: I understand I know what it feels to walk in our sales folks shoes trying to get these price increases because even though costs are going up nobody wants to take a price increase, especially when you.

Speaker Change: When you're delivering so much value. So while we have been successful in recapturing our increased costs.

Eric A. Mendelson: So while we have been successful in recapturing our increased costs, and plus a little bit in some cases, the percentage of the OEM at which we sell our parts is, as I said, at an all-time low, and we're in a market capture space, and we think that we can continue to drive exceptional value for our customers by maintaining this philosophy. Thank you. If you would like to take our next question from Scott Deuschle with Deutsche Bank, please go ahead. Oh, hey, good morning.

Speaker Change: And plus a little bit in some cases.

Speaker Change: The percentage.

Speaker Change: Of OEM at which we sell our parts is as I said at an all time low.

And.

Speaker Change: Whereas the market capture space and we think that we can continue to drive exceptional value.

Speaker Change: For our customers by maintain.

Speaker Change: Maintaining this philosophy.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: And we'll take our next question from Scott Please.

Speaker Change: With Deutsche Bank. Please go ahead.

Speaker Change: Hey, good morning.

Scott: Hey, good morning, Scott.

Scott Deuschle: Thanks. Thanks, Scott. Hey Carlos, can you give us an update on the operating margins you think FSG should be able to achieve this year? It looks like you're tracking a good bit higher than the 21-22% range you outlined previously. The FSG is performing exceptionally well right now. The caution I'll throw at you is number one, you know, obviously we are a conservative bunch, and I'm not sure at this point once we get through this what I'll call exceptional growth period and the mix within the segment kind of flattens out or settles out.

Scott: Hey, Carlos can you give us an update on the operating margins do you think <unk> should be able to do this year. It looks like you're tracking a good bit higher than the 21% to 22% range you outlined previously.

They are yes, the SSG is performing exceptionally well right now and.

Speaker Change: The caution.

Speaker Change: I'll throw at you is number one obviously we are conservative bunch.

Speaker Change: And I'm not sure at this point once we get through this what I'll call exceptional growth period.

Speaker Change: And the mix within the segment kind of flattens out or settles out.

Scott Deuschle: I'm still thinking that, you know, maybe it's towards the high end of 22 for sort of thinking out long term once we settle in, but I wouldn't, I don't want to guide or get you guys thinking about us having 23 plus percent margins. Now, I don't see impediments in front of us to continue to have these strong margins, but I do think that as the footprint settles down, we'll just see a natural tendency to have the margin come down a little.

Speaker Change: Im still thinking that maybe it's towards the high end of 'twenty, two for sort of thinking out long term.

Speaker Change: Once we settle in but.

I wouldn't I don't want to guide dearth or gets you guys thinking about a 793 plus percent margins now I don't see impediments in front of us to continue to have these strong margins, but I do think that as the footprint settles down we will just see a natural tendency to.

Scott Deuschle: And by the way, the reason for that is during the quarter, we had exceptional growth in our aftermarket parts business. Repair and overhaul was strong, not as strong as the parts business. And specialty products were a little flat on the commercial OEM product build side.

Speaker Change: To have the margin can download and by the way. The reason for that is during the quarter, we had exceptional growth in our in our aftermarket parts business repair and overhaul was strong not as strong as the parts business and specialty products is a little flat on the commercial OEM product build side. So I think as those segments their growth patterns get back.

Speaker Change: To normal we might see a slight depression of that 23%, but not a ton.

Carlos L. Macau: So I think if those segments, their growth patterns get back to normal, we might see a slight depression off that 23%. But not a ton. Does that answer your question, Scott? Yeah, it does. I mean, you did 22 and a half, though, and the 22 and a half percent on the first half, and typically, your second half is stronger. I'm just trying to figure out what drives it down in the second half versus the first half.

Speaker Change: Does that does that answer your question Scott.

Scott: It does I mean, you did 22 and a half though on the 22, 5% in the first half and typically our second half stronger I'm, just trying to figure out what drives it down second half versus first half. So it sounds like that's kind of what you're getting.

Scott Deuschle: It sounds like that's kind of what you're doing. At some point, it's going to be mixed. I'm not so sure that we are going to lose momentum in what I'll call, you know, exceptional growth this year. So we probably will have margins that bounce around. But, you know, I can't predict the exceptionalism of our team members.

Scott: At some point is to get the mix I'm not so sure that we are going to lose momentum in what I'll call exceptional growth. This year. So we probably will have margins that.

Scott: The bounce around but.

Scott: I can't predict the exceptionalism of our team members I mean, the operations and the way they are running the business now to keep up with the demand that's out there to deal with this growth in employees and everything they are just doing an exceptional job. So.

Carlos L. Macau: I mean, the operations and the way they're running the business now to keep up with the demand that's out there to deal with this growth and employees and everything. They're just doing an exceptional job. So, you know, I hope this margin will continue. I'm just cautioning you that my view is once the mix settles in, you know, if we're running 21 to 22, we're going to be very happy as a management team. And Scott, this is Eric. Scott, this is Eric.

Scott: I Hope this margin would continue I'm just I'm just cautioning you that my view is once that once the mix settles in for run in 'twenty. One 'twenty two we're going to be very happy as a management team.

Eric A. Mendelson: And I can tell you, and this is a shout out to our many team members who I think are on this call, but HEICO has got the biggest bunch of sandbaggers that you've ever, that I've ever seen. And, one, they're super talented. This is not meant to take away from their achievements because their achievements are nothing short of incredible and amazing. However, having said that, as Carlos said, they tend to be very conservative. We joke around internally. Carlos and I call them sandbaggers. They know who they are. Oh, I think Carlos is a sandbagger too.

Scott: Scott This is Scott.

Eric A. Mendelson: Scott This is Eric and I can tell you and this is a shout out to our many team members, who I think are on this call, but HEICO has got the biggest bunch of sandbaggers that you've ever that I've ever seen.

Eric A. Mendelson: One there are super talented this is not meant to take away from there.

Eric A. Mendelson: Our achievements because their achievements are nothing short of incredible and amazing.

Carlos L. Macau: However, having said that as Carlos said, they tend to be very conservative we joke around internally Carlos and I call them Sandbaggers, They know who they are and lifestyle apparel handbag or two.

Eric A. Mendelson: Well, I understand that we're just taking these numbers and rolling them up. And, you know, when we go and talk to them about, come on, you're performing at this, why is the number going to go down? They've got 22 possible reasons, including a meteor strike and, you know, all sorts of crazy stuff that could cause it.

Eric A. Mendelson: Okay.

Eric A. Mendelson: Yeah.

Eric A. Mendelson: Yes.

Eric A. Mendelson: Understand that where we're just taking these numbers enrolling them up and when we go and talk to them about come on you are performing at this why is the number going to go down they've got 22 possible reasons, including a meteor strike.

Eric A. Mendelson: And as a result, we really take up the numbers, and we even add a positive contingency very often to them because we know that they're low. But it is very hard to, it's very hard to quantify. And the reason I don't, if you will, fight the sandbagging is because it encourages them to look at all of the areas of potential risk. There are all sorts of, there's, it's a Herculean effort to achieve these numbers.

Eric A. Mendelson: All sorts of crazy stuff that could cause it and as a result, we really take up the numbers and we even add a positive continue to see very often do it because we know that they are low but it is very hard to.

Eric A. Mendelson: It's very hard to quantify and the reason I don't.

Eric A. Mendelson: If you will fight the sandbagging is because it encourages them to look at all of the areas of potential risk there are all sorts of.

Eric A. Mendelson: It's a herculean effort.

Eric A. Mendelson: To achieve these numbers and there are all sorts of things that can go wrong in the supply chain and with technology and processes all sorts of things and they are very much focused on what can go wrong and as a result since they worked so hard to mitigate those factors. They most of the time almost all.

Eric A. Mendelson: And there are all sorts of things that can go wrong in the supply chain, and with technology, and processes, all sorts of things. And they are very much focused on what can go wrong. And as a result, since they work so hard to mitigate those factors, they, most of the time, almost always, overperform.

Eric A. Mendelson: Always over perform so that's sort of where we are in it I mean, what we're hoping to do better but.

Eric A. Mendelson: So that's sort of where we are in it. I mean, look, we're hoping to do better, but based on the numbers that we've got and the variations in the business cycle, this is what it rolls up to. So we just sort of go with that. Okay, yeah, I appreciate that. Eric, I guess while I have you, if I go back to 2022 and the first half of 23, specialty products were growing like crazy.

Eric A. Mendelson: Sure.

Eric A. Mendelson: Based on the numbers that we've got and the variations in the business cycle. This is what it rolls up too. So we just sort of go with that.

Speaker Change: Okay. Yeah, I appreciate that Eric I guess, while I have you if I go back to 2022 in the first half of 'twenty three specialty products was growing.

Eric A. Mendelson: And I guess a lot of that was driven by munitions, but the growth rate has slowed quite a bit since then. So I guess my question is, do you have a sense for when we might expect to see specialty products return? You have a stronger growth profile, and then you know what you need to see in order for that to happen.

Speaker Change: Like Crazy and I guess, a lot of that was driven by munitions, but the growth rate has slowed quite a bit. Since then so I guess my question is do you have a sense for when we might expect to see specialty products returned to <unk>.

Speaker Change: Stronger growth profile, and then what you need to see in order for that to happen.

Eric A. Mendelson: Got it. So the short answer to that is fiscal 25, which we think is when it's going to happen. I do want to mention that actually we don't make, HEICO doesn't make any munitions. I think what you're referring to is missile defense.

Speaker Change: Got it so the.

Speaker Change: The short answer to that is in fiscal 'twenty. Five we think is when it's going to happen.

I do want to mention that actually we don't make HEICO doesn't make any munitions I think what youre, referring to is missile defense. So we are very active on missile defense interceptors.

Eric A. Mendelson: So we are very active in missile defense interceptors. And we have a, you know, high content there and, you know, on other missile platforms. But typically, it's more in the defense area, although I suppose there is some in the offensive, but we don't make the explosives, the explosive defense themselves.

Speaker Change: And we have a high content there and on other missile platforms, but typically it's more in the DIFM.

Speaker Change: Defense area, although I suppose there is some in the offensive, but we don't make it.

Speaker Change: The explosive the explosives themselves.

Eric A. Mendelson: When you look at the numbers, we're anticipating next year is going to be very strong. We've had significant ramp-ups in a number of businesses. And we have significant orders on the books. And now we've just got to produce and record backlog. We were really very, very good in the specialty products area. So I'm anticipating very good results in 2025 on that. By the way, Scott, one thing to point out with that defense business is that, just like in the ETG, it can be incredibly lumpy.

Speaker Change: When you look at the numbers. We're anticipating next year is going to be very strong we've had significant ramp ups in a number of businesses.

Speaker Change: And we had significant orders on the books and now we've just got to produce and record backlog record backlog we are.

Speaker Change: Really very very good in the specialty products area. So I'm anticipating very good results in 2025 on that by the way Scott one thing to point out with that defense business just like in the atg. It can be incredibly lumpy and it gets it eric's pointing out you have to ramp to serve these big.

Speaker Change: Projects and.

Eric A. Mendelson: And it gets that Eric's pointing out, you have to ramp up to serve these big projects. And, you know, their backlog is at a record high. And we do expect good things in 25. Not to say this year, I don't expect growth; I'm just 25.

Speaker Change: Their backlog is at record high and we do expect good things in 'twenty five.

Not to say this year I don't expect growth I've, just 25, we arent going to be good growth for us in that area.

Carlos L. Macau: And you know, it's going to be big growth for us in that area. Got it. And still margin recruitment growth like it's historically been. Yeah, on the defense side, that's correct.

Got it and still margin accretive growth like it has historically been.

Speaker Change: Yeah on the defense side Thats correct.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Lawrence Solow: Thank you. Thank you. We'll take our next question from Larry Solow with TJS Security. Go ahead.

We will take our next question from Larry Solow with CJS Securities.

Speaker Change: Please go ahead.

Lawrence Solow: Great. Thank you.

Speaker Change: Morning, everybody.

Lawrence Solow: Great. Great. Thank you. Good morning, everybody.

Lawrence Solow: First question, it's just on the disparity between the really great growth in the parts business, 21%, and sort of the mid-to-high single digits, it sounds like, on repair service and overhaul. Is that difference, you know, or part of that difference where you're capturing market share gains, or is that too simplified of a way to look at it? Yeah, I think there are some market share gains to be made there. Hi Larry, this is Eric.

Lawrence Solow: First question just on the disparity between the really great growth in the parts business, 21% on sort of the mid to high single digits. It sounds like on repair service and alcohol is that difference a part of that difference where youre capturing market share gains.

Lawrence Solow: Or is that too simplified way to look at it.

Speaker Change: Yes, I think there are some market share gains there.

Eric: Hi, Larry this is Eric.

Eric: There are market share gains I think that.

Eric A. Mendelson: There are market share gains. I think that in the parts area. Remember, in our business, we typically ship discrete parts. So if we've got the part on the shelf, we're able to sell it. Whereas, in the component repair business, we're really beholden to the supply chain. We can have an LRU that's got a few hundred different part numbers on the bill of material, and one part is being held up, which is actually the case in many different businesses, and we can't ship it.

Speaker Change: In the parts area remember our business, we typically ship discrete parts. So if we've got the part on the shelf, we're able to sell it whereas in the component repair business will really be hold into the supply chain. We can have an <unk>. That's got a few 100 different part numbers and the bill of material and one part.

Speaker Change: It is being held up which actually is the case in many different businesses and we can ship it and we've got this big backlog and it's basically just sitting there and.

Eric A. Mendelson: And we've got this big backlog, and it's basically just sitting there. And so that's sort of what I think what's also going on there. Gotcha. And a question maybe for Carlos. I did notice there was a bit of a contingency reversal in the quarter. Was that in FSQ? Yes, it was, yes it was.

Speaker Change: So that.

Speaker Change: That's sort of I think what's what's also going on there.

Speaker Change: Gotcha and then a question maybe for Carlos just.

Speaker Change: I noticed there was a bit of a contingency reversal in the quarter was that in SSG.

Carlos L. Macau: Yes, it was yes.

Carlos L. Macau: So, this quarter we had about, it was like a net $4 million; it was a $6 million reduction in the contingency, and then we had some inventory reserves we took for a product line. And so we had about a $4 million net pickup in the margin related to contingent earn out reversal, and that was due to an acquired contingent earn out through the one core acquisition. Gotcha. Now, you should remember that. Yeah, go ahead, please.

Carlos L. Macau: So.

Speaker Change: This quarter, we had a.

Carlos L. Macau: About it was like a net $4 million was $6 million reduction in our contingency and then we had some inventory reserves, we took for our product line.

Carlos L. Macau: So we had about a $4 million.

Carlos L. Macau: <unk>.

Carlos L. Macau: Net pickup in the margin related to contingent earn out reversal and that was due to a acquired contingent earn out through the <unk> acquisition.

Speaker Change: Got you know remember that oncor itself, yes.

Speaker Change: Got it.

Carlos L. Macau: Remember, that's on our numbers right now; that's maybe a half a point to the margin. Last year we had, if you recall, in the same quarter, we had a $9 million reversal for the renegotiation of a contingent earn out. And that was a little bit more impactful to our margins. That was maybe a percent and a half or something like that on the margin.

Speaker Change: Remember that that's on our numbers right now thats, maybe a half a point to the margin last year. We had if you recall in the same quarter, we had a $9 million reversal for the renegotiations of a contingent earn out.

Speaker Change: And that was a one of a more impactful to our margins that was maybe a percent and a half or something like out of the margin. So.

Carlos L. Macau: So, you know, net-net, it was actually a headwind for us this quarter. But maybe that gives us a little bit of a reason for a little bit of a sequential decline going to the back end for the year. It was a little bit of a benefit this quarter, I guess.

Speaker Change: Net net it was actually a headwind for us this quarter.

Speaker Change: Year over year, but but but maybe that gives us a little bit of a reason for a little bit of a sequential decline going into the back half of the year.

Speaker Change: It was a little bit of a benefit this quarter I guess.

Eric A. Mendelson: I appreciate you supporting us on that. Just on Wencore, Eric, you mentioned sort of this operating as a standalone, and I think that's the beauty of HEICO, and most of your subsidiaries kind of run autonomously. Being that Wencore is so large and has a lot of similarities with your core PMA parts business and distribution and whatnot, are there opportunities to sort of merge, blend those two companies more together than the normal HEICO way you operate? Hi Larry.

Speaker Change: Just core appreciate I appreciate you supporting us on that.

Yeah, Yeah absolutely.

Speaker Change: Just just on one corner, Eric you mentioned sort of they're still operating as a standalone and I think that's the beauty.

Speaker Change: Heiko multiyear.

Speaker Change: Subsidiaries, it's kind of run autonomously.

Speaker Change: That one quarter is so large and somewhat simple has a lot of similarities with your core PMA parts business and distribution and whatnot are there opportunities.

Speaker Change: Sort of merged blend those two companies more together than than the normal heiko.

Speaker Change: Do you operate.

Eric A. Mendelson: So that's a great question. A lot of people have wondered about that. And as you know, HEICO has the unique ability, which you don't typically find in a company of our size, to operate businesses in similar or same spaces and to sort of direct traffic so they don't hurt each other and make sure that we maintain the entrepreneurial spirit. And I think that is the single most important thing that we can do.

Speaker Change: Hi, Larry.

Speaker Change: So that's a great question a lot of people have.

Speaker Change: I wondered about that.

Speaker Change: And as you know HEICO has the unique ability, which you don't typically find in a company of our size.

Speaker Change: Operate businesses in the similar same spaces and to sort of direct traffic. So they don't hurt each other.

And.

Speaker Change: Make sure that we maintain the entrepreneurial spirit and I think that is the single most important thing that we can do.

Eric A. Mendelson: Just last week, I was at the Aerospace Industries Association Board of Governors meeting, and actually, PwC did a wonderful presentation speaking about what's going on in terms of the employment trends in the aerospace market. And what was interesting is that the lack of interest from people with regard to aerospace is not due to the mission of aerospace or even the defense part because, you know, some people are sensitive about that.

Speaker Change: Just last week I was at the Aerospace Industries Association Board of Governors meeting.

Speaker Change: And actually Pwc did a.

Speaker Change: A wonderful presentation speaking about what's going on in terms of the employment trends in the aerospace market and what was interesting is that the.

Speaker Change: The lack of interest from people with regard to aerospace is not due to the mission of the aerospace or even the defense part because some people are sensitive about that.

Eric A. Mendelson: And it's not due to the earnings level. It's due to the fact that when people join large companies, they feel pigeonholed, and they don't feel like they're able to get a good experience. And I think that that's the unique thing about HEICO. We recognize that there's no question that there's synergy. You know, if we can functionally put things together, we can drive certain processes, eliminate costs, and do all that. But what it does in the process is kills the entrepreneurial nature, the enthusiasm, the desire to stay up late, to work late, to make sure that you accomplish what your customer needs, where you have full responsibility for the product from selecting it, designing it, manufacturing it, procuring or inspecting it, selling it, and accounting for it. And this is what is very, very motivating to our team. So to answer your question, no, there's no plan to put this together.

Speaker Change: And it's not due to the earnings level, it's due to the fact that when people join large companies.

Speaker Change: I feel pigeonholed and they don't feel like they have they are able to get a good experience and I think that that's the unique thing about HEICO, we recognize that Theres no question Theres synergy if we can functionally put things together, we can drive certain processes eliminate costs and do all that but what it.

Speaker Change: It does and the process is it kills the entrepreneurial nature of the enthusiasm and the desire to stay up late to work late to make sure that you accomplish what your customer needs, where you have full responsibility for the product from selecting it designing it manufacturing it.

Speaker Change: Procuring our manufacture are.

Speaker Change: And inspecting it selling it accounting for it and this is what is very very motivational to our team. So to answer your question. No. There is no plan to put this together. However, there is the opportunity to cooperate and frankly with the organic growth that we've got.

Eric A. Mendelson: However, there is the opportunity to cooperate. And frankly, with the organic growth that we've got, if we could just have these businesses work together and become more efficient but still retain their entrepreneurial spirit and their individual focus, there are tremendous cost benefits by just giving our internal people internal promotional opportunities and not having to go outside and hire more people. So I don't see, if you will, cost synergies in terms of job reductions. But I do see the opportunity for our people to put their heads together and figure out that we've already gotten to the point where one plus one equals two and a half.

Speaker Change: If we could just.

Had these businesses work together.

Speaker Change: And.

Speaker Change: Become more efficient, but still retain their entrepreneurial spirit and their individual focus.

Speaker Change: There are tremendous cost benefits by just giving our internal people the internal promotional opportunities and not having to go outside and hire more people.

Speaker Change: So.

Speaker Change: I don't see if you will cost synergies in terms of a job reductions.

Speaker Change: But I do see the opportunity for our people to put their heads together and figure out.

Speaker Change: We've already gotten to the point, where one plus one equals two and a half but I think we're going to continue to focus the one plus one can equal three or four or five.

Eric A. Mendelson: But I think we're going to continue to focus so one plus one can equal three or four or five. And that's really the focus. And it's not going to be through job cuts, you know, the way some other companies handle this kind of thing. Got it. I appreciate that call.

Speaker Change: That's really the focus and it's not going to be through job cuts.

The way some other companies handle this kind of thing.

Lawrence Solow: If I could just slip one in for Victor, if you guys don't mind, just a big, big 4% organic growth, double-digit defense on the defense side. What was sort of the standouts on the offsets on the negative side that kind of offset some of that growth on the other products? Anything extraordinary there?

Speaker Change: Got it I appreciate that color and if I could just slip one in for Victor you guys don't mind just.

Speaker Change: 4% organic growth double digit defense on the defense side, what was sort of the standouts on the on the offsets on the negative side of that kind of offset some of that growth on the other products anything.

Speaker Change: Jordan are there.

Victor H. Mendelson: Larry, thank you for the questions. A good question, and I was feeling neglected, so I had to answer a question. But all kidding aside, the weakest part was the other markets, you know, the non-aerospace and defense markets, which you may recall, on the last couple or several calls, I said to anticipate that being lower. And I would expect the order rates to start to tick up in the back half of the year, although I'm not sure whether it's the third or fourth quarter.

Larry: Yeah, Larry Thank you for the questions and good question and I was feeling neglected to answer a question Thats all.

Victor H. Mendelson: But you know, we're certainly seeing some green shoots here and there, though not across the board. But I think that is the case. And it's really a result of customer inventory channels; they had stocked up. And much the same way a lot of companies in our industry have done in our industries have done. And I think they're working off those in those inventories. At this point, that'll continue for a little bit longer than you had a lead time in after the orders start to turn. So we had a little lead time. But I'm optimistic about those businesses. But I think we have a problem.

Larry: But all kidding aside.

Speaker Change: The weakest part was.

Speaker Change: Other markets.

Speaker Change: Non aerospace and defense markets, which you may recall in the last couple or several calls I said to anticipate that being lower than I would expect the order rates to start to tick up in the back half of the year I'm not sure whether it's a third or fourth quarter, but we're certainly seeing some green shoots here and they're built out across the board.

Speaker Change: But that that is.

Speaker Change: The case and it's really a result of customer.

Speaker Change: Customer inventory channels, they had stocked up.

Speaker Change: Much the same way a lot of companies in our industry have done in our industries have done and I think they're working off those in those inventories at this point that will continue for a little bit longer than you had a lead time and after the.

Speaker Change: After the orders start to turn so we had a little lead time so.

Speaker Change: I'm optimistic about those businesses, but I think we have probably I don't know couple of quarters or so left to go on negative comparisons.

Lawrence Solow: I don't know, a couple quarters or so left to go on the negative comparison. Got it. Thank you. Thanks, everybody. Welcome.

Speaker Change: Got it. Thank you thanks everybody.

Youre welcome also backward.

Peter J. Arment: Our next question comes from Peter Arment with Baird. Please go ahead. Yeah, good morning, everyone.

Speaker Change: Yes.

Speaker Change: Our next question comes from Peter Arment with Baird. Please go ahead.

Peter J. Arment: Yes, good morning, everyone.

Peter J. Arment: Thanks for all the details and a great quarter. So Eric, I wondered, in your prepared remarks, you made some comments about the partnership that you have with one core, TMA business. You mentioned Wincore is utilizing HEICO's manufacturing facilities and products. Just curious to get more color on that, what kind of opportunity that is.

Speaker Change: Thanks for the thanks for all the details and great quarter.

Speaker Change #100: So Eric I wanted you made in your prepared remarks, you made some comments about kind of the partnership with <unk> in your traditional business. You mentioned went quarters utilizing heico's manufacturing base quote new products, just curious to get more color on that what kind of opportunity that is for for for one quarter.

Eric A. Mendelson: We think it's pretty substantial. WENCOR has an excellent vendor base, and they remain loyal to that vendor base. They're not, in general, moving product from, you know, established vendors who are making it.

We think it's pretty substantial.

<unk> has an excellent vendor base and they remain loyal to that vendor base theyre not in general moving product from established vendors, who are making it. However, as you know the industry supply is very tight right now.

Eric A. Mendelson: However, as you know, industry supply is very tight right now, even in the HEICO business. And we have the opportunity to redirect capacity, frankly, in our specialty products group more towards the HEICO businesses. And I've been out there working with, you know, the head of our specialty products group, and I am working with our individual businesses to explain the virtues of manufacturing for HEICO and Wincor as opposed to only third-party customers.

Speaker Change #100: In HEICO businesses.

Speaker Change #100: And we have the opportunity to redirect capacity.

Speaker Change #100: Frankly in our specialty products group more towards the HEICO businesses and I've been out there working with the head of our specialty products group and I are working with our individual businesses to explain the virtue of manufacturing for HEICO and <unk> as opposed to only third party customers.

Does.

Speaker Change #100: When third party customers. They are great and we want to stay focused on them as well, but when it's an internal customer you know very clearly what's going on competitively and we're able to move priorities for them. So.

Eric A. Mendelson: Because, you know, third-party customers are great, and we want to stay focused on them as well. But when it's an internal customer, you know very clearly what's going on competitively, and we're able to shift priorities for them. So, and also able to really focus on quality.

Speaker Change #100: And also able to really focus on the quality I mean, thats been a key key focus for HEICO and for <unk> in terms of making sure that the products that we supply are the absolute best in the industry. So I think this is something that will start to pay dividends in 2025.

Eric A. Mendelson: I mean, that's been a key, key focus for HEICO and for Wincor in terms of making sure that the products that we supply are the absolute best in the industry. So, I think this is something that will start to pay dividends in 2025 and after, both in terms of more timely deliveries to our internal customers, as well as, frankly, the profit margin that our specialty products companies can make by supplying these high-quality parts to the HEICO companies.

After both in terms of more timely deliveries to our.

Speaker Change #100: Internal customers as well as frankly profit margin that our specialty products companies can make by supplying these high quality parts to the HEICO companies. There is a lot of stuff that we can do.

Eric A. Mendelson: There's a lot of stuff that we can do. You know, there are 10 different businesses in our specialty products group and they all have unique capability and we, I think there's opportunity in the vast majority of, Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change #100: There are 10 different businesses in our specialty products group and they all have unique capability and we I think there is opportunity in the vast majority of them.

Speaker Change #100: Perfect.

Eric: Good color and then just Eric just staying with you on just what you're seeing from a from a international travel perspective, what are you seeing.

Eric: Any pockets of strength or weakness or anything to call out on a regional basis.

Speaker Change #101: Curious on that.

Eric A. Mendelson: So I spoke with all of our sales heads last week and went over all the details, and we're seeing tremendous strength around the world. The Americas remain strong, as well as Europe and Asia, the Middle East, China, so we're seeing very good, very good strength across the board. You know, the market seems extremely strong; people want to travel both for business as well as for leisure, so things look good. I wouldn't say there's one or two areas of particular strength; I'd say it's very broad-based.

Speaker Change #102: So I spoke with all of our sales heads last week and went over all the details and we're seeing tremendous strength around the world.

Speaker Change #102: The Americas remained strong as well as Europe, and Asia and Middle East.

Speaker Change #102: China. So we're seeing very good very good strength across the board.

Speaker Change #102: The market seems extremely strong people want to travel both for business as well as leisure.

Speaker Change #102: So things look things look good I Wouldnt say, there is one or two areas of particular strength.

Speaker Change #102: It's very broad based.

Victor H. Mendelson: Right. And then just quickly, Victor, you had some, I guess, some timing delays in Q1. Just, you know, how is the supply chain looking? About, obviously, kind of the back half. Hi, yeah, this is Victor.

Speaker Change #103: Great and then just quickly Victor on you had.

Speaker Change #104: Some I guess some timing delays in Q1 just.

Speaker Change #105: How does how is the supply chain are looking for or <unk>. When you think about obviously kind of the back half of the year I was thinking about it.

Victor H. Mendelson: So, um, you know, I think our supply chain has pretty much returned mostly to normal. I don't think companies talk too much about and focus too much on supply chain issues, small supply chain issues that were at the noise level then, but certainly, people are no longer afraid to do that. But it seems to me as though things are maybe not quite entirely back to normal, but fairly close. There's still some pockets here and there where some lead times are extended or deliveries are delayed. But again, my sense of it is that it wasn't unheard of before the pandemic either.

Victor H. Mendelson: Hi, Yes. This is victor so.

Victor: I think our supply chain is pretty much returned mostly to normal.

Victor: I don't think companies talk too much about and focus too much about <unk>.

Supply chain issues small supply chain issues that were in the noise level then.

Speaker Change #107: But certainly people are no longer afraid to do that but it seems to me as though.

Speaker Change #107: Things are maybe not quite entirely back to normal, but fairly close theres still some pockets here and there.

Speaker Change #107: Where some lead times.

Speaker Change #107: Our extended or deliveries are delayed but again.

Victor H. Mendelson: We just didn't really hear much about it. And your R&D efforts, Victor, I know you guys called that out. You know, is that for New Operating Orders, or is there a new operation? It's a combination.

Speaker Change #107: My sense of it is that wasn't unheard of before the pandemic either we just didn't really hear much about it.

Speaker Change #108: Okay, and your R&D efforts Victor I know you guys called that out in Q1.

Speaker Change #109: Is that is that for existing orders or new new new opportunities.

Speaker Change #108: Yeah.

Victor H. Mendelson: I mean, our R&D activities in ETG remain very strong. It's a key part of what we do. And that's for some of it, Customer Funded, shows up as revenue, NRE, and things like that, but a lot of it is related to product development for future products, and in the aerospace industry, generally speaking, R&D is expensive.

Victor: It's a combination I mean, our R&D activities and atg.

Speaker Change #110: <unk> very strong its a key part of what we do.

Speaker Change #111: Thats for some of its.

Speaker Change #111: Customer funded shows up as revenue.

Speaker Change #111: <unk> and things like that.

Speaker Change #111: But.

Speaker Change #111: Lot of it is related to product development for future products and in the aerospace industry generally speaking R&D expenses, we start something today.

Victor H. Mendelson: If you start something today, it takes time, years before it turns into revenue or meaningful revenue, so we have to keep that constant investment going. I think it's something we've been very successful with and our subsidiaries have been very successful with over long periods of time. Yeah, Peter, we spend roughly 3%, sometimes 4% of sales on R&D. That's pretty consistent.

Speaker Change #111: It takes time years before it turns into revenue meaningful revenue. So we have to keep that constant investment going I think it's something we've been very successful within our subsidiaries have been very successful with over a long period of time.

Victor H. Mendelson: That's what we saw this quarter. [inaudible] And ETG is probably higher than that for a variety of reasons, you know, because we have some businesses. The ETG is probably above 5% for R&D. Thanks guys. Where did my next question come from? Subin with Stiefel.

Speaker Change #111: Yes, Peter we spend roughly 3%, sometimes 4% of sales on R&D, that's pretty consistent and that's what we saw this quarter.

Speaker Change #111: Companywide.

Speaker Change #112: And <unk> probably higher than that.

Speaker Change #113: For variety of reasons.

Speaker Change #113: We have some businesses the etp's probably above 5%.

Speaker Change #113: On R&D.

Speaker Change #114: Perfect. Thanks, guys I appreciate all the details.

Speaker Change #114: Okay.

Speaker Change #115: Our next question comes from Bert.

Speaker Change #116: <unk> with Stifel. Please go ahead.

Subin: Please go ahead. Good morning, and thank you for the questions. Victor, maybe just to start with you, you know, you gave some good color on ETG and what you've seen there. You've seen... a little bit of volatility in your organic growth over the last several quarters. As we think forward, do you expect that to stabilize? And do you still see that group on track for the mid single-digit growth you thought you would see in 24?

Speaker Change #117: Hey, good morning, and thank you for the questions.

Speaker Change #118: Good morning.

Speaker Change #119: Victor maybe just to start with you.

Victor: Some good color on on Atg, and what you're seeing there you've seen.

Speaker Change #120: Yeah, a little bit of volatility in the organic growth over the last several quarters.

Speaker Change #120: We think forward.

Speaker Change #121: Do you expect that to stabilize and do you still see that group on track for the mid single digit growth you thought you would see in 'twenty four.

Subin: Yeah, you know, historically, this has been the case for ETG, that it's volatile growth quarter by quarter. And I would expect that to continue to be the case. I don't I don't think we have suddenly reached a different run rate.

Speaker Change #121: Yes.

Speaker Change #121: Historically this has been the case for <unk>.

Speaker Change #121: That is it's volatile growth quarter by quarter.

Speaker Change #121: And.

Speaker Change #122: I would expect that to continue to be the case I don't I don't think so.

Speaker Change #122: Suddenly reached a different run rate, but I think the overall trend is.

Speaker Change #122: Is it positive in upward trend.

Speaker Change #122: And that's supported by the backlog and supported by quote activity.

Speaker Change #122: Other things.

Victor H. Mendelson: But I think the overall trend is a positive and upward trend. And I, you know, that's supported by the backlog, it's supported by quote activity, and other things. Got it. Okay. And then Eric, one for you. And Carlos was going to add to that.

Speaker Change #123: Got it Okay, and then Eric one for you.

Speaker Change #124: Carlos is going ahead of that but I just wanted to sorry interject.

Carlos L. Macau: I just want to interject, we still expect low to mid-single-digit growth in ETG for the year, which that statement implies volatility if you think about what we've done to date versus the next two quarters. So I think Victor's right, it's going to be up and down, but we do expect low to mid-single-digit growth for the year organically.

Speaker Change #125: But we still expect low to mid single digit growth in atg for the year, which that statement implies volatility if you think about what.

Speaker Change #125: What we've done to date versus the next two quarters. So I think Victor is right, it's going to be up and down but we do expect a low to mid single digit growth for the year organically.

Subin: Okay, thank you. On the FSG side, this question for you, Eric, maybe just a little more high level. You know, a lot of what you're seeing on the volume side for parts in terms of, you know, what you're expecting in repairs has been driven by, you know, a variety of macro features but largely the combination of the aging global fleet, you know, air travel demand, what we've seen there, and just depressed inventory. Carlos, you made some comments about, you know, some normalization of what you're seeing today in time.

Speaker Change #126: Got it okay. Thank you.

Speaker Change #127: On the SSG side. This question for you, Eric maybe just a little more high level.

Speaker Change #128: A lot of what Youre seeing would seem like on the volume side for parts in terms of what Youre expecting in repairs has been driven by a variety of macro features but largely the combination of the globe. The ageing global fleet Air travel demand, what we've seen there and just depressed inventory.

Carlos you made some comments about some normalization and what youre seeing today over time like how do you think about those.

Eric A. Mendelson: Like, how do you think about those, you know, those macro trends as you look out? It sounds like from what you were saying, Eric, you're seeing strength across the board. Is there anything concerning you that that might change in the near term?

Speaker Change #128: Those macro trends as you look out it sounds like from what you were saying, Eric you're seeing strength across the board is there anything concern you that that might change in the near term.

Speaker Change #128: Yes.

Eric A. Mendelson: Um, Bert, that's something that we think about all the time. However, in order to be in this industry, you've got to really have a long-term view. And, you know, we never know what's going to come around the corner, but we've got to be well positioned for everything. So we're fundamental believers in commercial and military aviation. You know, we think that these are really good spaces to be in. We understand them extraordinarily well.

So.

Speaker Change #129: It's something that we think about all the time however in order to be in this industry.

Speaker Change #129: Got to really have a long term view and we never know whats going to come around the corner, but we've got to be well positioned for everything. So we are fundamental believers in commercial and military aviation. We think that these are really good space to be in we understand them extraordinarily.

Speaker Change #129: Well, we're really appreciated by our customers, yes, there is tremendous strength.

Eric A. Mendelson: We're really appreciated by our customers. Yes, there is, you know, tremendous strength. Yes, there is a certain percentage of the fleet that's down as a result of, you know, issues that are going on. But we also have a fleet, a massive fleet of 20-something thousand aircraft that's aging one year per year.

Speaker Change #129: Yes, there is a certain percentage of the fleet that's down as a result of.

Speaker Change #129: The issues that are going on but we also have a fleet.

Speaker Change #129: <unk> fleet in 2000, and something thousand aircrafts Thats aging one year per year.

Eric A. Mendelson: And most of the other major players out there increase prices very substantially. So we think that we're in a very good area. But could there be a little air pocket here or there?

Speaker Change #129: And most of the other major players out there increased price very substantially so we think that we're in in a very good area could there be a little air pocket here there sure.

Eric A. Mendelson: Sure, that could absolutely happen, but that's why we don't like to be over-leveraged. And we wanna make sure that we've got plenty of cash to always do the right thing, to continue our successful acquisition program, which is key to everything we do. And we're gonna be very strong no matter what happens out there. And then also to point out the obvious. I mean, every roughly nine years, 10 years or so, there's always some black swan event.

Speaker Change #129: That could absolutely happen, but that's why we don't like to be over Levered and we want to make sure that we've got plenty of cash to always do the right thing to continue our successful acquisition program, which is key to everything we do and when.

Speaker Change #129: We're going to be very strong no matter, what what happens out there. So and then also to point out the obvious I mean every roughly nine years 10 years or so theres always some black Swan event. The last one of course was the most dramatic.

Eric A. Mendelson: The last one, of course, was the most dramatic, but look at how strong we've emerged from it. And when we look at ourselves as a percentage of what we were doing in 2019, I mean, this company has absolutely transformed for the better and grown tremendously, both organically and via acquisition since then. So we don't worry about, if you will, the little air pockets or what could be happening down the road.

Speaker Change #129: But look at how strong we've emerged from it and when we look at our sales as a percentage of what we're doing in 2019 I mean this company has absolutely transformed for the better and grown tremendously both organically and via acquisition.

Since then so we don't worry about that.

Speaker Change #129: If you will the widow.

Speaker Change #129: The widow.

Speaker Change #129: Air pockets or what could be happening down the road I mean, I could paint a scenario, where I mean look we hope that the.

Eric A. Mendelson: I mean, I could paint a scenario where, look, we hope that the new manufacturer gets straightened out. We can benefit very well as a result of that, and we hope the world economy remains strong and people want to travel, and all that capacity is soaked up. It becomes impossible for anybody to calculate, so we just keep our heads down and focus on the business, and I'm very confident we're going to do well. Thanks for that, Eric.

Speaker Change #129: The new manufacturer gets straightened out because we have we can benefit very well as a result of that and we hope the world economy remains strong and people want to travel and all that capacity is soaked up it becomes impossible for any anybody that to calculate so we just keep.

Speaker Change #129: Our heads down and.

Speaker Change #129: And focus on the business and I'm very confident we're going to do well.

Subin: Just one quick follow-up for Carlos on the interest expense side. You know, Eric just mentioned, you know, not wanting to over leverage, you guys started to pay down some debt. Should we still expect interest expenses to follow the same glide path that you were talking about last quarter? Yeah, I think so. I think, you know, I'm not counting on any movements really in the interest rate. We probably will wind up running 30. I think we ran 38 million this quarter.

Speaker Change #130: Thanks for that Eric just one quick follow up for Carlos on the interest expense side.

Speaker Change #131: Eric just mentioned not wanting to over leverage you guys started to pay down some debt should we still expect interest expense to sort of follow the same glide path that you were talking about last quarter.

Carlos L. Macau: Yes, I think so I think.

Carlos L. Macau: I'm not counting on any movements really in the interest rate, we probably will wind up.

Carlos L. Macau: 130.

Subin: It's probably going to be, you know, down a million each quarter after this or some just from debt from principal paydowns. So, that's probably what we're going to see this year as we continue to do whatever that will be the interest expense. Thank you for gliding over to, okay.

Carlos L. Macau: I think we ran $38 million this quarter, it's probably going to be.

Carlos L. Macau: Down 1 million each quarter after this or sub just from that from principal paydowns. So.

Carlos L. Macau: That's probably what we're going to see this year as we continue to delever that will be the interest expense.

Thank you for your glide path.

Carlos L. Macau: Okay.

Speaker Change #132: We'll take our next question from Mckesson Herbert with RBS capital markets. Please go ahead.

Kenneth George Herbert: We'll take our next question from Ken Herbert with RBS Capital Marketing. Please go ahead. Yay, good morning, and really nice quarter. Thanks again.

Yeah, Hey, good morning, and really nice quarter.

Thanks.

Kenneth George Herbert: Hey, Eric, maybe just to start off when we think about your aerospace sales within the FSG segment, can you remind us the mix of what you're selling that's under long-term contracts versus maybe what's more book and ship? I don't have that information in front of me, but our, You know, I'm guessing it's in the, You know, when you go across all of the businesses, you know, I'm guessing it's in sort of the 50-50 area, but I don't have that.

Speaker Change #132: Hey, Eric maybe just to start off when we think about your the aerospace sales within the <unk> segment could you remind us the mix of what you're selling this under long term contracts versus maybe what's more book and ship.

Kenneth George Herbert: I don't have that specific information. As a result, as I said, you know, as I mentioned earlier, as a result of the decentralized structure, we don't capture a lot of that information. But my guess is it's probably around the half and half area.

Speaker Change #133: I don't have that information in front of Mei.

Speaker Change #134: But our.

Speaker Change #135: I'm guessing it's in.

Speaker Change #135: But when you go across all of the businesses.

Speaker Change #135: I think it's in.

Speaker Change #135: The $50 50 area, but I don't have that.

Speaker Change #135: Don't have that specific information as a result, as I said as I mentioned earlier as a result of the.

Speaker Change #135: The decentralized structure.

Speaker Change #135: We don't capture a lot of that information, but my guess is it's probably around the half and half area.

Eric A. Mendelson: Okay, and are you maybe organizationally trying to skew maybe one way or the other as you have contracts coming up for renewal, say with some of your large airline customers, are you trying to, in the businesses, drive them to maybe more of a book and ship scenario? Or, strategically, is that something you're comfortable deciding the operating units should do what's best? Well, so my comment about the 50-50 is looking at our entire parts business, which includes both PMA and distribution.

Speaker Change #136: Okay and are you organizationally trying to skew maybe one way or the other as you have contracts coming up for renewal soon with some of your large airline customers, who are trying to and the businesses drive them to maybe more of a book and ship scenario or strategically is that something you're comfortable with splitting the operating units.

Do what's best.

Speaker Change #137: Well so.

Speaker Change #138: My comment about the 50 50 is looking at our entire parts business, which includes both PMA and distribution. So I think the distribution would probably due to less contracts in other words less than 50% and the PMA would be more than 50% so that.

Eric A. Mendelson: So I think the distribution would probably skew to less contracts, in other words, less than 50 percent. And the PMA would be more than 50 percent. So that's sort of the dichotomy there that I was looking at.

Speaker Change #138: It's sort of a dichotomy there that I was looking at.

Eric A. Mendelson: Our customers, with regard to PMA, like the idea of having a long-term agreement. And we like that idea, too, because we can go out and procure the product for them and protect them. You know, clearly, if they want to be protected on price, we're happy to do that. But, in turn, they've got to commit to us. So, you know, definitely on the PMA side, the percentage of contracts would be, you know, I'm guessing well over 50 percent. Okay, okay, that's helpful.

Speaker Change #138: Our customers are with regard to PMA, they like the idea of having a long term.

Speaker Change #138: Agreement and we like that idea too because we can go out and procure the the product for them and protect them.

Speaker Change #138: Clearly if they want to be protected on price, we're happy to do that but in turn they've got to commit to us. So.

Speaker Change #138: Definitely on the PMA side, the percentage of contracts would be.

Im guessing well over 50%.

Victor H. Mendelson: Um, and then maybe just finally, Victor, to put a finer point on sort of the lumpiness, you're up against some pretty tough comps within the defense and space sales within ECG in the second half of this year, especially in the fourth quarter. Do you think it's fair to assume that you're seeing backlog and that we should still see growth in the defense businesses into the back half of this year? Could we maybe see those down a little bit just considering the strength in the back half of 23?

Okay. Okay. That's helpful. And then maybe just just finally victor to put a finer point.

Sort of a lumpiness youre up against some pretty tough comps within the defense and space sales within EG in the second half of this year, especially the fourth quarter do you is it fair to assume that youre seeing backlog that we should still see growth through the defense businesses into the back half of this year could we maybe see those those down a little bit just considering the.

Speaker Change #138: In the back half of 'twenty three.

Victor H. Mendelson: Yeah, I'd like to see how it plays out. I'm feeling good at the moment about the third quarter. And I think the fourth, if I look at the shipment schedules, it's flatter, more challenging, but we had like 6% organic growth in Q4 ETG last year, so that's a tough comp. Yeah, so it's going to be a tough one.

Speaker Change #139: Yes, I would like to see how it plays out I am feeling good at the moment about the third quarter.

Speaker Change #139: And I think the fourth if I look at the shipment schedules, it's flatter or more more more challenging but I think we had like a 6% organic growth I'm thinking Q4, atg last year. So that's a tough comp so it's going to it's going to be a tough one I think we'll have to let it play out we'll see.

Kenneth George Herbert: I think we'll have to let it play out. We'll see where it goes. I don't think it's so easy, but we'll see where it goes. Great. All right. Thanks a lot, guys. Thanks again.

Speaker Change #139: Where it goes I don't think its so easy, but we'll see where it goes.

Speaker Change #141: Great Alright, thanks, a lot guys.

Speaker Change #140: Thanks, Ken.

Sam Strasacher: Our next question comes from Sam Strasacher with Truist Securities. Please go ahead. Hi, good morning, guys. I'm Mike from OLE.

Speaker Change #142: Your next question comes from Sam stress soccer with tourists Securities. Please go ahead.

Sam Strasacher: Nice quarter. I was just curious, kind of looking at the support or, sorry, the strength and aftermarket. Could you guys kind of maybe try and break that out a little bit more? Were there any particular areas of strength or weakness, whether it be across airframe engines, interiors, or even not weaknesses, but certain areas that you were seeing more growth from versus others? I would say overall it was very broad-based in the quarter.

Sam: Hi, good morning, guys for much lower now.

Speaker Change #144: Nice quarter.

Speaker Change #145: Was just curious as kind of looking at it.

Support or sorry, the strength in aftermarket because you guys kind of maybe try and break that out a little bit more was there any particular areas of strength or weakness, whether it be across airframe engines interiors or even not weakness, but certain areas that you were seeing more growth from versus others.

I would say overall it was very broad based.

Speaker Change #145: In.

Speaker Change #145: In the quarter.

Speaker Change #145: It's hard to sort of get into it by a particular product type and that can be sort of heavily skewed depending on what.

Sam Strasacher: It's hard to sort of get into it by particular product type, and that can be sort of heavily skewed depending on, you know, what inventory packages are taking place. So at the moment, I think it would be misleading for me to get into that, because people would extrapolate and view it perhaps not correctly. So, if you don't mind, I'd rather punt and talk about that perhaps next quarter as we start to see some of this.

Speaker Change #145: Inventory packages are taking place so at the moment I think it would be misleading for me to get into that.

Speaker Change #145: Because people would extrapolate and view it.

Speaker Change #145: Perhaps not correctly.

Speaker Change #145: So if you don't mind I'd rather punting.

Speaker Change #145: We'll talk about that perhaps next quarter as we start to see some of this but as I mentioned earlier. It does appear to be very broad based the support is really broad based.

Eric A. Mendelson: But as I mentioned earlier, it does appear to be very broad-based; the support is really broad-based. Fair enough. And then obviously, you guys are still sort of working on the integration of WEN Corp., but how are you guys kind of thinking about M&A going forward in the long term? We are fully 100% committed to M&A. It is a key part of HEICO's strategy, and it drives a nice chunk of our growth. We are, as you can see, over three times levered after we completed the Wincor acquisition, and then we also purchased the Honeywell display unit product line. Now we're down to 2.45 times.

Speaker Change #146: Fair enough.

Speaker Change #147: And then obviously you guys are still.

Speaker Change #148: We're working on the integration of when core but how are you guys kind of thinking about M&A going forward in the long term.

Speaker Change #149: We are fully 100% committed to M&A.

Speaker Change #149: Is a key part of HEICO strategy.

Speaker Change #149: And it drives a nice chunk of our growth.

Speaker Change #149: As you can see we were over three times Levered. After we completed the <unk> acquisition.

Speaker Change #149: And then we also purchased the Honeywell display unit product line now we're down to 2.45 times. Our M&A teams are very very focused in finding great companies. We're in discussions with many we work really hard to be the acquirer of choice I think that we are.

Eric A. Mendelson: Our M&A teams are very, very focused on finding great companies. We're in discussions with many. We work really hard to be the acquirer of choice. I think that we are sort of lucky and fortunate in that our competitive advantage is this decentralized model, which appeals to people very well.

Speaker Change #149: Sort of Lucky and fortunate in that our competitive advantages. This decentralized model, which appeals to people very well I mean, I can tell you and I visit companies and even in processes I would say at least four out of five.

Eric A. Mendelson: I mean, I can tell you that when I visit companies and even go through processes, I would say at least four out of five leadership teams tell us that HEICO is their preferred acquirer. And of course, who knows what they tell all the different bidders out there, but I really do believe that our approach is unique, and people want a part of it, and we are very, very focused. And also, it's supported by our customers.

Speaker Change #149: Leadership teams tell us that HEICO is their preferred acquirer.

Speaker Change #149: And of course.

Speaker Change #149: Who knows what they tell all the different bidders out there, but I really do believe.

Speaker Change #149: Our approach is unique and people want a part of it and we are very very much focused and also it is supported by our customers I mean, it was our customers who want it and we were so excited about the <unk> acquisition, because we can put these two product lines together.

Eric A. Mendelson: I mean, it was our customers who wanted and who were so excited about the Wincor acquisition because we could put these two product lines together and really offer much more of a competitive offering to our airline customers. I mean, they were the ones most supportive of doing this.

Speaker Change #149: And really offer much more of a competitive offering to our to our airline customers I mean, they were the ones most supportive of doing this.

Eric A. Mendelson: So we're going to remain very, very active in that area. Great. Thanks, guys.

Speaker Change #149: So.

Speaker Change #149: We're going to remain very very active in that area.

Speaker Change #150: Great. Thanks, guys.

Speaker Change #151: Thank you. Thank you.

Speaker Change #152: We will take our next question from Louis Raffetto with Wolfe Research. Please go ahead.

Louis Raffetto: Thank you. We will take our next question from Louis Raffetto with Wolf Research. Please go ahead. Great, thank you. Eric, just a couple for you.

Eric A. Mendelson: I think FSG sales were up about 5% sequentially, but if I look at your acquired growth, thinking about Wencor and then the Honeywell product line, it looks like Wencor sales were flat, even down sequentially, while legacy was up mid-single digits. Is that... or the right way to think about it? I mean, we don't get into the specifics, but no, I mean, I wouldn't say that Wincore sales were down. I mean, Wincore is performing extremely well.

Louis Raffetto: Yeah, great. Thank you.

Louis Raffetto: Eric just a couple for you I think SSG sales were up about 5% sequentially, but if I look at your acquired growth I'm thinking about when corn then the Honeywell product line. It looks like one core sales were flat to even down sequentially. While legacy was up mid single digits is that.

That's sort of the right way to think about it.

Speaker Change #154: We don't get into the specifics, but no I mean.

Speaker Change #155: Say that one quarter sales.

Speaker Change #156: We're down one quarter is performing extremely well they are way up as compared to last year. So they're performing well I mean look in any of the businesses you've got this.

Eric A. Mendelson: They're way up as compared to last year, so they're performing well. I mean, look, in any of the businesses, you've got this. We're at the mercy of the supply chain. And I can tell you that we've got a lot of suppliers who are very, very late. And that can sway quarters, you know, significantly, actually.

Speaker Change #156: We're at the Mercy of the supply chain and I can tell you that we've got a lot of suppliers who are very very late.

Speaker Change #156: And that can sway quarters.

Speaker Change #156: Significantly actually.

Eric A. Mendelson: But when quarters are performing extraordinarily well, winning new business, we couldn't be happier. I appreciate the insights and, you know, interesting to hear about. You're not the only one that mentioned the part supply sort of limiting the MRO. So just good for that, that insight. And I guess you would, you know, I know, Eric kind of confirmed the loader, and Carlos confirmed the loader mid single digit growth for ETG. I mean, I think you guys have kind of laid out high single-digit to low double-digit growth for FSG. It seems like you're certainly going to be at the high, high end of that, if not above that. Is that fair?

Speaker Change #156: But <unk> is performing extraordinarily well, winning new business, we couldnt be happier.

Speaker Change #157: Alright, I appreciate the insights it's interesting to hear about you're not the only one you mentioned the part supply sort of limiting the MRO. So just good for that.

Speaker Change #158: That insight and I guess, you would I know Eric kind of confirm the loader Carlos confirmed the low to mid single digit grocery T. G. I mean, I think you guys had kind of laid out a high single digit to low double digit growth for SSG I mean, it seems like you're certainly going to be at the high high end of that if not above that is that fair assumption.

Louis Raffetto: I think we're going to stick with the high to low double digit growth for the year. I think it's still a good assumption, Lou. All right, thank you very much. Thank you. Next, we'll take our question from Gautam Khanna with T.D. Cohen.

Lou: I think we're we're going to stick with the high to low double digit growth for the year I think it's still a good assumption Lou.

Speaker Change #160: Alright, Thank you very much.

Speaker Change #161: Thank you. Thank you.

Speaker Change #162: And next we will take our question from Gautam Khanna with TD Cowen. Please go ahead.

Gautam Khanna: Please go ahead. Hey, thanks for staying on long enough to talk to me here. Gautam.

Gautam Khanna: Hey, Thanks for staying online talk to me here.

Speaker Change #162: Yeah.

Gautam Khanna: Hey, Gautam.

Gautam Khanna: Hey, so I was curious, how far along are you guys on kind of introducing WENCORS' product suite to HEICO's legacy airline customers, and vice versa. I know there was a whole comment when the deal was announced that WENCOR was bigger with the MRO facilities than with HEICO, and you guys were stronger at the airline. I'm just curious, like, how... How much time does it take to kind of make those?

Gautam Khanna: Hey, So I was curious how far along are you guys on kind of introducing.

Speaker Change #164: When <unk> product suite to.

Heico's legacy airline customers.

Speaker Change #164: And vice versa, I know there was a hole.

Speaker Change #164: The comment when the deal was announced that one quarters bigger with the MRO facilities Federal Tycho and you guys were stronger at the Airlines I'm just curious like how.

Speaker Change #164: How much time does it take to kind of make those.

Eric A. Mendelson: introductions and have those the product catalog added to the contracts that you guys already have, if you will, you know, each each of those companies already have. Yes. So Gautam, I think what you're referring to is, you know, we said that historically, you know, Wincor originally got its, You know, its sort of focus was more on the repair stations. They still dealt with the airlines, but more of their focus was originally on the repair stations, and it was sort of vice versa with HEICO.

Speaker Change #164: Introductions and have those the product catalog added to the.

Speaker Change #165: So the contracts that you guys already have if you will.

Speaker Change #166: Each of those companies already have.

Speaker Change #167: Yes, so I think what youre, referring to is we said that historically <unk> originally got it.

Speaker Change #167: It's sort of focus was more in the repair stations they still dealt with the airlines, but more of their focus regionally within the repair stations and it was sort of vice versa with HEICO.

Eric A. Mendelson: But I can tell you that the cooperation is going extremely well. We are both companies helping each other, and there are airline customers where Wincor has more of a presence, and there are airline customers where HEICO has more of a presence.

Speaker Change #167: But I can tell you that the.

Speaker Change #167: Cooperation is going extremely well.

Speaker Change #167: We are.

Speaker Change #167: Both companies are helping each other and there are airline customers, where <unk> had more of a presence in there are airline customers, where HEICO had more of a presence.

Eric A. Mendelson: And we are introducing the folks on both sides so they can go ahead and take advantage of those relationships and that history and be able to sell their products. So I think that that is happening as we speak, and I anticipate that it's going to continue to happen in 2025. I think we will continue to see the...

Speaker Change #167: And we are introducing the folks on both sides. So they can go ahead and take advantage of those relationships.

Speaker Change #167: History and be able to sell their products. So I think that that is happening as we speak and I anticipate that that's going to continue to occur in.

Speaker Change #167: On.

Speaker Change #167: In 2025.

Speaker Change #167: I think we will continue to see the.

Eric A. Mendelson: Very good results in that area. Has there already been traction, like commercial traction, you guys are already getting sales from some of that cross selling opportunity or is it still on the, No, no, we, we, we, we, no, no, we, we, We have received sales on it, and I think that's one of the reasons you see the organic growth rate, and you see the margins that we have, because we've already realized the benefits.

Speaker Change #167: Very good results in that area.

Speaker Change #168: Has there already been traction.

Speaker Change #169: Commercial traction you guys are already getting sales from some of that cross selling opportunity or is it still on the comps.

Speaker Change #168: No.

Speaker Change #168: No.

Speaker Change #168: Yes.

Speaker Change #170: We have we have received sales on it and I think thats one of the reasons you see the.

Speaker Change #170: Organic growth rate and you see the margins that we have because we've already realized the benefits I think there is a lot more to come.

And.

Speaker Change #170: But we recognise them thus far.

Eric A. Mendelson: I think there's a lot more to come, but we recognize them thus far. Gotcha, that's helpful. And then, Carlos, I know you addressed this earlier in the call, but just do you have a better sense of the long-term FSG margin framework? At one point, it was 22% long-term. I know there's reasons you guys are over that now, but is that still kind of the right bogeyman longer term with when core or not? Do you think it could be structurally higher?

Speaker Change #171: Got you that's helpful and then Carlos.

Carlos L. Macau: You addressed this earlier in the call, but just do you have a better sense of the long term <unk> margin framework at one point. It was 22% long term I know there's reasons that you guys are over that now but is that still kind of the right bogey longer term with <unk> or.

Carlos L. Macau: Do you think it could be structurally higher.

Carlos L. Macau: I think the long-term margin probably is around that 22% rate. And I do think that if you look back over the, if you sort of ignore the COVID period and look back over the decade prior to that, you will see that our margin is pretty consistent and that every year we make little improvements in it. I think we're going to be heading towards that pace where we get back, as I mentioned earlier, to a normal footprint within the segment when the mix is kind of what it used to look like, and then we move forward from there and eke out those little efficiencies. That's what my long-term expectation is.

Speaker Change #172: I think the long term margin probably is around that 22% rate and I do think that if you look back over the if you sort of ignore the COVID-19 period and look back over the decade. Prior to that you will see that our margins pretty consistent in that every year, we get a little improvements in it I think we're going to be we're heading towards that pace to where.

Speaker Change #172: We get back as I mentioned earlier to a normal footprint within the segment when the mix is kind of what it used to look like and then move forward from there and <unk> got those little efficiencies, that's my expectation long term.

Eric A. Mendelson: And of course, Gautam, this is Eric. We've got, as I mentioned, in the quarter, we had 280 basis points from intangible amortization. So you add that, and we're really approaching 25% on an EBITDA basis, which is outstanding. Yeah, absolutely. And then last one, Eric, just in terms of product introductions, I know in the past you talked about three to 500 PMA parts being developed each year. What's the right number? Now that you own Wencor and have some experience with them, is it higher than that? Or is it the same number? Three to 500? Yeah, I would think it's closer to the 500 area.

Eric: And of course Gordon This is Eric we've got as I mentioned in the quarter, we had 280 basis points from intangible amortization. So you add that and we're really approaching 25%.

Speaker Change #173: On an EBITDA.

Speaker Change #173: Basis.

Speaker Change #174: Which is.

Speaker Change #174: Outstanding.

Speaker Change #175: Yes, absolutely and then last one Eric just in terms of product introductions I know in the past you talked about.

Speaker Change #175: Three to 500 PMA parts developed each year.

Speaker Change #176: The right number.

Speaker Change #177: Now that you're on one quarter and have had some experience with them is it higher than that or is it the same number three to 500.

Eric A. Mendelson: WENCOR continues to focus on and develop a very aggressive number of products, HEICO, obviously the same, the key is getting all those parts manufactured and getting the airlines to buy them. So we've got the capability and, you know, we continue to, we're not going to cut back in any of that area. Thanks guys, I appreciate it. Thank you. And we'll take our next question from Louie DiPalma with William Blair. Please go ahead. Eric, Victor, and Carlos, good morning.

Eric: Yes, I would think it's closer to the 500 area.

Speaker Change #178: <unk> continues to focus and develop.

Speaker Change #179: Very aggressive number of products HEICO, obviously the same.

Speaker Change #179: The key is.

Speaker Change #179: Getting all those parts manufacturer and in getting the airlines of either.

Speaker Change #179: So we've got we've got the capability and we continue to.

Speaker Change #179: We're not going to cut back in.

Speaker Change #179: In any of that area.

Speaker Change #180: Thanks, guys I appreciate it.

Speaker Change #181: Thank you.

Speaker Change #181: Okay.

Speaker Change #182: And we'll take our next question from Louie Dipalma with William Blair. Please go ahead.

Louie Dipalma: Good morning. One of the recurring themes on both the FSG and the ETG side of the business is your ability to consistently introduce new products to the market. You just mentioned the target of 500 new PMA parts per year. Similarly, I was wondering what ETG is doing in terms of new products per year, and is there still a long runway, and is Ukraine more inspiring new ideas and demand for new types of products? Louis, this is Victor.

Speaker Change #184: Eric Victor and Carlos Good morning.

Speaker Change #183: Good morning.

Speaker Change #185: One of the recurring themes on both FSD in the atg sides of the business.

Speaker Change #186: Our ability to consistently introduce new products to the market.

Speaker Change #187: Just mentioned the target of <unk>.

Speaker Change #187: 500, new PMA parts per year.

Speaker Change #187: Holly.

Speaker Change #188: Was wondering what is.

Speaker Change #189: <unk> doing in terms of new products per year and is there still a long runway and is the Ukraine more.

Speaker Change #189: Barring new ideas and demand.

Speaker Change #189: New types of products.

Victor H. Mendelson: Thank you. It's a very good question. I don't know the number of new products and new part numbers we actually introduce in the ETG each year because it's a very large number and we have so many subsidiaries. But one of the things that we do look at when we meet with the companies each year is we do an annual meeting and do a budget review, and it's a bottoms-up budget. We do look at, with each one, their new product introduction rate, and it is a very active and regular rate.

Victor: Louis This is Victor Thank you it's a very good question.

Speaker Change #190: I don't know the.

Speaker Change #190: A number of new products and new part numbers.

Speaker Change #190: Actually introducing the ETD each year because it is a very large number and we have so many subsidiaries.

Speaker Change #190: But one of the things that we do look at when we meet with the companies each year, we do an annual meeting and do a budget review and it's a bottoms up budget.

Speaker Change #190: We do look at with each one of their new product introduction and it is a very active and regular rate.

Victor H. Mendelson: And I think my sense of it is it's probably higher than most people I see in the industry. So, very, very happy with that. And that was my allusion earlier to R&D spending and why it's so critical for us to do in good times or in bad. We don't cut R&D spending if a business is weaker in a particular moment because, ultimately, that's our salvation, right?

And I think it's my sense of it is it's probably higher than most people I see in the industry. So very very happy with that and that will continue and that was my illusion earlier to the R&D spending and why it's so critical for us to do in good times or bad we don't cut R&D spending of the business is weaker in a particular.

Speaker Change #190: Because ultimately thats, our salvation right and that's that's how we grow the business over time.

Victor H. Mendelson: And that's how we grow the business over time, and we look at it on a very long-term basis. In terms of Ukraine, yes, Ukraine has meant more new product introductions in some of our businesses and has stimulated sales in a number of our businesses as well. It's had an interesting effect because I think it has reminded our allies in Europe, our friends, of the need to expand their defense spending sustainably and long-term.

Speaker Change #190: And we look at them very long term basis in.

In terms of Ukraine, yes.

Ukraine.

Speaker Change #190: It has meant more new product introduction and some of our businesses.

Speaker Change #190: And has stimulated sales in a number of our businesses as well.

Speaker Change #190: And it's it's Ukraine had an interesting effect because I think it has reminded our allies in Europe our friends.

The need to expand their defense spending sustainably.

And long term and that's that's happened right and that's happening and we're seeing more investment there. The company. We acquired we completed the acquisition in January 23 of Excel, which.

Victor H. Mendelson: And that's happened, right, and that's happening, and we're seeing more investment there. The company we acquired, we completed the acquisition on January 23 of Excelia, which is a company headquartered in France with significant operations and sales in Europe.

Speaker Change #190: Which is a company headquartered in France with significant operations in sales in Europe.

Victor H. Mendelson: And that was one of the things that attracted us to that business was the opportunity to offer products to our friends and allies, as well as, by the way, here in the U.S. And the Ukraine war does have an impact on U.S. companies and, obviously, as we know, what the U.S. supplies. So I would expect that to continue. And then when that conflict ends, and I hope it ends soon, of course, but when it ends, I think it will have an enduring effect on how people look at defending themselves and what they spend their money on.

Speaker Change #190: And that was one of the things that attracted us to that business was the opportunity to.

Speaker Change #190: To offer products to our friends and allies as well as by the way here in the U S and the Ukraine.

Speaker Change #190: War does have an impact on U S companies and obviously as we know what the U S supply so I.

Speaker Change #190: I would expect that to continue and then when that conflict ends and I hope. It ends soon of course, but when that ends I think it will have an enduring effect on how people look at defending themselves and what they spend to do it.

Victor H. Mendelson: Great. And I think you have a number of microwave products and components. Are you supplying to some of the microwave OEMs in terms of, like, air defense and counter drone?

Speaker Change #191: Great and I think you have a number of microwave products and components are you supplying to some of the.

Speaker Change #192: Microwave Oems in terms of.

Speaker Change #192: Air Defense and counter drone.

Speaker Change #192: <unk>.

Victor H. Mendelson: Functionality. Sure. And of course, as you can imagine, I can't point out specific programs, but I can say that is definitely part of the business.

Speaker Change #192: Functionality.

Speaker Change #193: Sure and of course as you can imagine I cant point out specific programs, but I can say that is part of that is definitely part of the business.

Victor H. Mendelson: And it is. It's within the ambit of what we do. Great. Thanks, everyone. Thank you. And that concludes today's question and answer session. At this time, I'll turn the conference back to you for any additional or closing remarks. So, this is Larry Mendelson.

Speaker Change #193: And it is within.

Speaker Change #193: And but what we do.

Speaker Change #193: Okay.

Speaker Change #193: Thanks, everyone.

Speaker Change #194: Thank you.

Speaker Change #195: And that concludes today's question and answer session. At this time I'll turn the conference back to you for any additional or closing remarks.

Laurans A. Mendelson: I want to thank everybody on this call for their interest in HEICO. We look forward to speaking with you about the third quarter results. And that will be sometime about three months from now. So, meanwhile, have a very good summer. Enjoy your summer, be safe. And HEICO will, I believe, do extremely well.

Speaker Change #195: So this is Larry Mendelson and I want to thank everybody on this call for their interest in HEICO we.

Speaker Change #195: Look forward to speaking with you.

Speaker Change #195: Third quarter results and.

Speaker Change #195: That will be some time about three months from now so.

Speaker Change #195: Meanwhile, have a very good summer.

Speaker Change #195: Enjoy your summer be safe and.

Speaker Change #195: Heiko.

Speaker Change #195: I believe do extremely well.

Speaker Change #196: Thank you and Thats the end of this call.

Operator: Thank you, and that's the end of this call. Thank you. And this concludes today's call. Thank you for your participation. You may now disconnect. Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent.

Speaker Change #196: Thank you and this concludes today's call. Thank you for your participation you may now disconnect.

Speaker Change #196: Okay.

Speaker Change #196: [music].

Speaker Change #196: Okay.

Speaker Change #196: Sure.

Speaker Change #196: [music].