Q3 2024 HEICO Corp Earnings Call

Welcome to the HEICO Corporation third quarter 2024 financial results call. My name is Tamara and I will be your operator for today's call 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.

So that can cause such differences include among other things the severity magnitude and duration of public health threats, such as the COVID-19 pandemic.

Heico's liquidity and the amount and timing of cash generation.

Our commercial air travel airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services.

Product specification costs and requirements, which could cause an increase to our costs to complete contracts governmental and regulatory demands export policies and restrictions.

Reductions in defense space, or homeland security spending by U S and or foreign customers or competition from existing and new competitors, which could reduce our sales.

Our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth product.

Product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales.

Cyber security events or other disruptions of our information technology systems could adversely affect our business.

And our ability to make acquisitions, including obtaining any applicable domestic and or foreign governmental approvals and achieve operating synergies from acquired businesses custom.

Customer credit risk interest foreign currency exchange and income tax rates and economic conditions, including the effects of inflation within and outside of the aviation defense space Medical telecommunications and electronics industries, which could negatively impact.

Our costs and revenues.

Parties listening to this call are encouraged to review all of Heico's filings within.

These 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 Lawrence Mendelsohn, Heico's, Chairman and Chief Executive Officer.

Sarah Thank you very much and good morning to everyone on this call.

Lawrence Mendelsohn: Thank you for joining us and we welcome you to this HEICO third quarter fiscal 'twenty earnings announcement teleconference.

Lawrence Mendelsohn: I'm, Larry Mendelson, Chairman and CEO of <unk> Corporation.

Speaker Change: And I am joined 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.

Speaker Change: Macau, our executive Vice President and CFO.

Speaker Change: Before reviewing our operating results I'd like to take a moment.

Speaker Change: Thank all of Heico's talented team members for their contribution to our record setting performance.

Speaker Change: Your continued focus on exceeding customer expectations.

Speaker Change: Operational excellence.

Speaker Change: Insulated into excellent results.

Speaker Change: For our shareholders.

Speaker Change: I continue to be very optimistic about.

Heiko: Future Heiko.

Heiko: Over the past.

Speaker Change: 16 waters.

Speaker Change: We've experienced incredible growth in our <unk>.

Speaker Change: Virtual aviation markets.

Speaker Change: Emerging from one of the darkest times in aerospace history, when air travel slowed to accrual amid COVID-19 pandemic.

Speaker Change: I couldnt be prouder of the professionalism and team.

Speaker Change: Yes.

Speaker Change: <unk> members, who demonstrated serving our customers during this period of rapid growth.

Speaker Change: Their ability to meet the challenge of accelerated growth it's commendable.

Speaker Change: And this includes the remarkable when core team members, who joined HEICO family last year.

Speaker Change: In addition, I am pleased with the progress and effort of our team members.

Speaker Change: Serving customers in the defense industry.

Speaker Change: It's my expectation that growth in this global industry will continue.

Speaker Change: Despite who wins the upcoming elections.

Speaker Change: Despite who wins the upcoming elections.

And the sort of the results we realized over the past.

Speaker Change: You years appear to be in the rearview mirror.

Speaker Change: And now I'd like to summarize the highlights of our third quarter fiscal 'twenty fours record results.

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

Speaker Change: And improved by 45% and 37%, respectively as compared to the third quarter fiscal 'twenty three.

Speaker Change: I think you'll all agree that those are astounded degrees votes.

Speaker Change: Consolidated net income increased 34%.

Speaker Change: We were a record $136.6 million.

Speaker Change: We're 97 cents per diluted share in the third quarter of fiscal 'twenty, four and that was up from 102 million with 74 cents per diluted share in the third quarter of fiscal 'twenty three.

Speaker Change: The flight support group set all time quarterly net sales and operating income records in the third quarter of fiscal 'twenty four improving 68%.

Speaker Change: 72%, respectively over the third quarter of fiscal 'twenty three.

Speaker Change: The increases principally reflect strong 15% organic growth mainly attributable to increased demand for the flight support group's commercial aerospace products.

Speaker Change: Services and.

Speaker Change: And the impact from our profitable fiscal 'twenty three 'twenty four acquisitions.

Consolidated EBITDA increased 45%.

Speaker Change: The 261 4 million in.

Speaker Change: In the third quarter of fiscal 'twenty before and that was up from 178.

Speaker Change: 8 million.

Speaker Change: Third quarter fiscal 'twenty three.

Speaker Change: Our net debt to EBIT.

Speaker Change: Ratio was 2.11 times.

Speaker Change: As of July 2031.

Speaker Change: Sure.

Speaker Change: And that was down from 324 times.

Speaker Change: October 31 23.

Speaker Change: Our excellent operating results.

Speaker Change: It allowed us to early achieves the forecast we made a year ago.

Speaker Change: Net debt to EBITDA ratio.

Speaker Change: Return to a historical level.

Speaker Change: Two times within roughly one year to 18 months following the <unk> acquisition.

Speaker Change: Thats, excluding any impact of further acquisitions.

Speaker Change: Our acquisition pipeline is extremely robust with opportunities in both flight support and <unk> and we intend to follow our time tested strategy.

Speaker Change: Opportunistic acquisitions that continue to expand the cash generating ability of HEICO.

Speaker Change: Cash flow provided by operating activities increased 47%.

Speaker Change: The $214 million in the third quarter of fiscal 'twenty four.

Speaker Change: And that was up from 145 49 billion in the third quarter of fiscal 'twenty three.

In July 24, we increased our regular semiannual cash dividend by 10% to 11 cents per share.

Speaker Change: This represented our 92nd consecutive semi annual cash dividend since 1979.

Speaker Change: I'd like to now discuss our recent acquisition activity.

Speaker Change: You may recall.

Speaker Change: December 23.

Speaker Change: The acquisition of exclusive perpetual licenses.

Speaker Change: Certain assets from Honeywell International.

Speaker Change: To support the Boeing 700 <unk>.

Speaker Change: And the Triple seven.

Speaker Change: Display.

Speaker Change: In legacy displays product lines.

Speaker Change: Which.

Speaker Change: <unk> group has been performing.

Speaker Change: Extremely.

Well for us.

Speaker Change: As a result and May 24 weeks.

Speaker Change: We completed a second transaction with Honeywell international under which we acquire additional licenses.

And certain assets to further enhance the manufacturing of these new products, including screens or military areas of the Boeing 737 G.

Speaker Change: And triple seven.

Speaker Change: Displays.

Speaker Change: And legacy displays product lines.

Speaker Change: Last week.

Speaker Change: We announce.

The flight support group acquired the aerial delivery.

Speaker Change: The scent division.

Speaker Change: Kate.

Speaker Change: <unk> systems.

Speaker Change: It's just price of this acquisition was paid in cash.

Speaker Change: Principally using proceeds for a model a revolving credit facility and we expect this acquisition.

Speaker Change: Would be accretive to our earnings.

Speaker Change: In the first year following the acquisition.

Speaker Change: At this time I would like to introduce Eric Mendelson co.

Eric Mendelson: Oh president of Iqos.

Tycho and president of <unk>.

Speaker Change: <unk> support group and he will.

Speaker Change: <unk> results.

Speaker Change: Light support group Eric.

Speaker Change: Thank you very much.

Speaker Change: Fight support group's net sales increased 68% to a record 681 6 million in the third quarter of fiscal 'twenty four up from $405 million in the third quarter of fiscal 'twenty three.

Speaker Change: The net sales increase reflects the impact from our fiscal 'twenty, three and 'twenty four acquisitions and strong 15% organic growth.

The organic net sales growth, mainly reflects increased demand across all of our product lines.

Speaker Change: As we continue to variance excellent organic growth within the SSG. We have also been highly successful in supplemental supplementing growth through acquisitions.

Last week, we acquired Capewell, a connecticut based leading provider of proprietary aircraft cockpit emergency egress and aerial delivery products for both the commercial aerospace and defense markets.

I am very impressed with their manufacturing process and strict adherence to high reliability and quality products, which help ensure our pilot and crew safety worldwide. They also have an excellent staff of people, who will fit extremely well within the HEICO family.

Speaker Change: The Wink core operations continued to exceed our expectations and we are convinced this was an excellent investment for HEICO.

Speaker Change: <unk> entrepreneurial culture, and our record of producing high quality products continues to produce wins in the marketplace.

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

Speaker Change: We continue to operate <unk> as a standalone business operation. However, we've made very good progress in working together and serving our customers and our combined seamless fashion.

Speaker Change: Some examples of how we are now working together include.

Speaker Change: One utilization of all HEICO and when core PMA in <unk> at all of our repair stations.

Speaker Change: <unk> commercial and defense aftermarket sales cooperation.

Speaker Change: Three went core e-commerce platform lists all HEICO noncompetitive PMA.

Speaker Change: Four when core is utilizing heico's manufacturing base in particular, our specialty products and electronic technologies group to quote new products.

Speaker Change: Five engineering and regulatory cooperation.

Fix sharing best in class vendors.

Speaker Change: And seven driving various back office synergies such as payroll and export compliance that will help offset the cost of additional regulatory compliance such as Sarbanes Oxley and heico's FAA Oda's program.

Speaker Change: The flight support group's operating income increased 72% to a record $153 6 million in the third quarter of fiscal 'twenty four up from 89 2 million in the third quarter of fiscal <unk>.

Speaker Change: Welcome to the HEICO Corporation, third quarter, 2024 Financial Results call.

Samara: Welcome to the HEICO Corporation, 3rd quarter, 2024 Financial Results call. My name is Samara and I will be your operator for today's call. 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[inaudible] of the loss of the loss of the loss of the loss of the loss of the loss of[inaudible] Now, before reviewing our operating results, I'd like to take a moment and thank all of Hi-Ghost talented team members for their contribution to our record setting performance.

Speaker Change: <unk> three.

Speaker Change: My name is Samara and I will be your operator for today's call.

Speaker Change: The operating income increase principally reflects the previously mentioned net sales growth and then improved gross profit margin, partially offset by an increase in intangible asset amortization expense.

Speaker Change: Certain statements in this conference call will constitute forward looking statements which are subject to risks, uncertainties and contingencies.

Speaker Change: 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, among other things, the severity, magnitude and duration of public health threats such as the COVID-19 pandemic, high-cos liquidity and the amount in 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.

Speaker Change: The improved gross profit margin principally reflects higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product line.

Speaker Change: The flight support group's operating margin increased to 22, 5% in the third quarter of fiscal 24 up from 22.0% in the third quarter of fiscal 'twenty three.

Speaker Change: Product specification costs and requirements which could cause an increase to our costs to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by US and or foreign customers or competition from existing and new competitors which could reduce our sales.

Speaker Change: Given that acquisition related intangible amortization expense consumed approximately 270 basis points of our operating margin in the third quarter of fiscal 2000 and for the FSD is cash margin before amortization or EBITDA was.

Speaker Change: Approximately 25, 2%, which is excellent in absolute terms.

Speaker Change: 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, cyber security events or other disruptions of our information technology systems could adversely affect our business, and 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, telecommunication, and electronics industries, which could negatively impact our costs and revenues.

Speaker Change: 180 basis points higher than the comparable flight support group cash margin of 23, 4% in the third quarter of fiscal 'twenty three.

Speaker Change: I am extremely pleased with these results.

Speaker Change: The increased operating margin principally reflects the previously mentioned improved gross profit margin as well as lower acquisition costs, partially offset by the previously mentioned higher intangible asset amortization expense.

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 third quarter results.

Victor Mendelson: The electronic technologies group Victor.

Victor Mendelson: Thank you Eric.

Victor Mendelson: The electronic technologies group's net sales were $322 1 million in the third quarter of fiscal 'twenty, four as compared to $325 9 million in the third quarter of fiscal 'twenty three.

Speaker Change: Slight net sales decrease principally reflects lower other electronics and medical products net sales, partially offset by increased defense space and aerospace products net sales. This is in line with our expectations. As we've commented on earnings conference calls over the last few quarters and is consistent with.

Speaker Change: Destocking at some customers.

Speaker Change: We continue to anticipate quarterly volatility in the <unk> defense net sales, but the overall trend remains very positive.

Speaker Change: Parties listening to this call are encouraged to review all of ICO's filings within the Securities and Exchange Commission, including but not limited to filings on Form 10K, Form 10Q and Form 8K.

Speaker Change: As expected other electronic net sales were lower during the third quarter of <unk>.

Speaker Change: <unk> 24, compared to the third quarter of fiscal 'twenty three.

Speaker Change: 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.

Speaker Change: We believe these order trends in these markets have bottomed and we are seeing improved orders in some of our companies in these other markets and these other markets typically equate to between the quarter and 30% of our sales.

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

Speaker Change: I continue to expect an overall return to growth in these end markets and businesses.

Speaker Change: During the first half of fiscal 'twenty five.

Speaker Change: The atg's record backlog and strong overall orders support our optimism and as the non <unk> and D markets improve we expect a healthy tailwind into our next fiscal year.

Speaker Change: There are a thank you very much and good morning to everyone on this call.

Speaker Change: Orders for commercial aviation and defense products had been very robust and we are very pleased with our business as performance like it accelerates, which continues to be a strong acquisition meeting our performance expectations, including growing its profit margins further our order book and quotation activity for fiscal 2006.

Speaker Change: We thank you for joining us and we welcome you to this ICO third quarter fiscal 24 earnings announcement teleconference.

Samara: Your continued focus on exceeding customer expectations and operational excellence translated into excellent results for our shareholders and I continue to be very optimistic about the future of Hi-Ghost. Over the past 16 quarters leave experienced incredible growth in our commercial aviation markets after emerging from one of the darkest times in aerospace history when air travel slowed to a crawl amid COVID-19 pandemic. I couldn't be prouder of the professionalism and tenacity of our team members who demonstrated serving our customers during this period of rapid growth.

Speaker Change: Is building nicely and I did mean to say fiscal 'twenty six in addition to 25% of course, which augments our optimism for later periods.

Speaker Change: As well.

Speaker Change: Yeah.

Speaker Change: The electronic technologies groups.

Speaker Change: Operating margin improved 23, 5% in the third quarter of fiscal 'twenty four.

Speaker Change: Up from 22, 8% in the third quarter of fiscal 'twenty three.

Speaker Change: Also note that before acquisition related intangibles amortization expenses, our operating margin was above 27%.

Samara: Their ability to meet the challenge of accelerated growth is commendable and this includes the remarkable win-core team members who joined Hi-Ghost family last year. In addition, I am pleased with the progress and effort of our team members have made serving customers in the defense industry. This is my expectation that growth in this global industry will continue despite who wins the upcoming elections and the softer results we realize over the past few years appear to be in the rearview mirror.

Speaker Change: Those intangibles amortization expenses consume around 400 basis points of our margin.

Speaker Change: And that's how we judge our businesses is that most closely correlates to our cash so when we look at how our businesses are doing on an operating basis. We are very pleased with the overall margins and their continued improvement.

Speaker Change: The operating margin increase principally reflects the previously mentioned improved gross margin gross profit margin, partially offset by a lower level of SG&A efficiencies.

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

Thank you Victor.

Larry Mendelson: Now for the outlook.

Lawrence Mendelson: And now I'd like to summarize the highlights of our third quarter fiscal 24 record results. Consolidated operating income and net sales in the third quarter of fiscal 24 represent record results for HICO and improved by 45% and 37% respectively as compared to the third quarter of fiscal 23. I think you'll all agree that those are a stand-degree results. Consolidated net income increased 34% who erected 136.6 million dollars for 97 cents per diluted share in the third quarter of fiscal 24 and that was up from 102 million was 74 cents per diluted share in the third quarter of fiscal 23.

Larry Mendelson: As we look ahead to the remainder of fiscal 2004, we remain optimistic about achieving net sales growth were both SSG and atg.

Larry Mendelson: This growth is expected to be largely fueled by the contributions from our fiscal 'twenty three 'twenty four acquisitions.

Larry Mendelson: Along with sustained demand for the majority of our products.

Larry Mendelson: Additionally, we are committed to ongoing product and service innovation.

Larry Mendelson: Further market penetration and maintaining our financial strength and flexibility.

Larry Mendelson: In conclusion, I want to again express my gratitude to.

Larry Mendelson: With the exceptional team members for their unwavering support and dedication to HEICO.

Larry Mendelson: Our strategy of building a diversified portfolio of <unk>.

Larry Mendelson: Outstanding businesses continues to deliver positive outcomes for our shareholders.

Lawrence Mendelson: The flight support group set all time quarterly net sales and operating income records in the third quarter of fiscal 24 improving 68% and top 72% respectively over the third quarter of fiscal 23. The increase is principally reflect strong 15% organic growth mainly attributable to increase demand for the flights of court groups to commercial aerospace products and services, and the impact from our profitable fiscal 23 and 24 acquisitions. Consolidated EBITSA increased 45% to 261.4 million in the third quarter of fiscal 24 and that was up from 179.8 million in the third quarter of fiscal 23.

Larry Mendelson: Our key markets are very strong and in fiscal 'twenty four is shaping up to be another successful year.

Speaker Change: Thank you shareholders for your continued trust.

Speaker Change: And as I've mentioned before.

Speaker Change: Very optimistic about the future for HEICO.

Speaker Change: And now we will open the floor to questions.

Speaker Change: Thank you.

Speaker Change: I would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question and we'll pause for just a moment to allow everyone an.

Speaker Change: An opportunity to signal for questions.

Speaker Change: We will take our first question from Robert Spingarn with Malleus research.

Lawrence Mendelson: Our net debt to EBITSA ratio was 2.1 more times as of July 2031-24 and that was down from 3.04 times as of October 31-23. Our excellent operating results have allowed us to early achieve the forecast we made a year ago that our net debt to EBITSA ratio would return to a historical level of about two times within roughly one year to 18 months following the one core acquisition and that's excluding any impact of further acquisitions.

Speaker Change: Yes.

Robert Spingarn: Well, good morning, and very nice quarter.

Speaker Change: Thank you. Thank you very much Rob good morning to you. Thank you.

Speaker Change: A couple I thought I'd start with the.

Speaker Change: The end markets.

Speaker Change: And.

Eric Mendelson: Eric <unk> organic growth rate.

<unk> relative to the prior two quarters and I was wondering is does this reflect the maturing integration that you just talked about between HEICO and when core or is this simply a fee.

Eric Mendelson: <unk> of the market maybe demand strengthening.

Eric Mendelson: And the end market and aftermarket.

Eric Mendelson: Yes, I think Thats, a great question, Rob and I have spent a lot of time in business reviews with our sales folks in particular over the last month going over a lot of the details.

Lawrence Mendelson: Our acquisition pipeline is extremely robust with opportunities in both flight support and ETG and we intend to follow our time tested strategy of opportunistic acquisitions that continue to expand the cash generating ability of HICO. Cash flow provided by operating activities increased 47% to 214 million in the third quarter of fiscal 24 and that was up from 145.9 million in the third quarter of fiscal 23. In July 24, we increased our regular semi-annual cash dividend by 10% to 11 cents per share. This represented our 92nd consecutive semi-annual cash dividend since 1979.

Speaker Change: There is no question that the market remains strong, but I do think the reason why we said the incredible 17% growth rate.

Speaker Change: Was so outstanding.

Speaker Change: Is because of really two factors one we continue to win in the marketplace and HEICO is an accumulation or a combination of a lot of.

Speaker Change: Individual businesses working as hard as they can planning years in advance developing these products, having them on the shelf and being able to hit the demand and get them sold when the market needs them. So I think that's number one.

Speaker Change: Everybody is sort of if you will all the unsung heroes, who are working their rear ends off every day to make this happen. So that's probably the first reason the second would definitely be due to the addition of <unk> and the broadening of our product line I think in speaking with our customers.

Lawrence Mendelson: I'd like to now discuss our recent acquisition activity. You may recall in December 23, we announced the acquisition of exclusive perpetual licenses and certain assets from Honeywell International to support the Boeing 737 NG and the trickle 7 cockpit display. And the legacy displays product lines which that total group has been performing extremely well for us. As a result in May 24 we completed a second transaction with Honeywell International under which we acquired additional licenses and certain assets to further enhance the manufacturing of these new products including screens for a military variant of the Boeing 737 NG, and triple seven cockpit displays and legacy displays product lines.

Speaker Change: We are viewed as a much more complete supplier I mean, HEICO today has transitioned.

Speaker Change: Tremendously over the last many decades and I think our customers are very confident in.

Speaker Change: Purchasing additional products from us whether it's parts distribution PMA repair.

And I think we are growing our market share. So it's really I think yes, the strong market, but more I think really focusing on the detailed by our businesses and the broadening of the product line.

Speaker Change: Through <unk> and the.

Speaker Change: 737, and Triple seven display unit acquisitions.

Speaker Change: Okay, and then notwithstanding the strong growth you know there've been some airlines out there talking about overcapacity, that's been a bit of a theme here are you seeing any evidence of that in the order patterns. So.

Speaker Change: So far no.

Speaker Change: No, we really don't actually and as a matter of fact, the number of airlines had sort of trimmed back their purchases. They if you will in hindsight I think over ordered a bit in 2023.

Lawrence Mendelson: Last week, we announced that a flight support group acquired the aerial delivery and decent divisions of Capewell aerial systems, purchase price of this acquisition, this painting cash, principally using proceeds from our revolving credit facility, and we expect this acquisition to be afraid of to our earnings within the first year following the acquisition.

Speaker Change: More than they needed in 2023, so we do have anecdotal evidence of certain customers are cutting back this year, but that was really offset by strength that other customers. So.

Speaker Change: I think we continue to do very well and that really that gets to the sort of the beauty of the HEICO motto and that we've got all these individual business units, who have to control their own destiny and if theyre short in one area. They figure out how to make it up in another area and this doesn't roll up.

Eric Mendelson: At this time, I would like to introduce Eric Mendelson, co-president of Heiko's, Heiko and president of Heiko Flight Support Group, and he will discuss the third quarter results of the flight support group, Eric. Thank you very much. The Flight Support Group's net sales increased 68% to a record 681.6 million in the third quarter of fiscal 24, up from 405 million in the third quarter of fiscal 23. The net sales increase reflects the impact from our fiscal 23 and 24 acquisitions and strong 15% organic growth.

Speaker Change: I'm Larry Mendelssohn, Chairman and CEO of ICO Corporation, and I am joined this morning by Eric Mendelssohn, ICO's Co-President and President of ICO's Flight Support Group.

Speaker Change: To my desk after the fact.

Speaker Change: And instead, they're doing this real time so.

Speaker Change: In summary, no I mean, the market for us remains quite strong.

Speaker Change: Okay, and then just on the OE side, both UN Victor have some exposure to commercial OE or are you seeing any slowdown in orders on the OE side because of the slower than expected production ramps, both at Airbus and Boeing or do you continue to ship at the higher targeted rates in there.

Speaker Change: Just taking inventory.

So we've definitely seen a reduction off of forecast due to their build rates.

Speaker Change: Theres No question Airbus is doing I think better than Boeing in that area.

Speaker Change: But yes definitely on the commercial OE production things are softer than expected that of course has been offset by our strength in the defense side, and we expect that strength to continue into 2025 2026 and.

Eric Mendelson: The organic net sales growth mainly reflects increased demand across all of our product lines. As we continue to experience excellent organic growth within the FSG, we have also been highly successful in supplemental, supplementing growth through acquisitions. Last week, we acquired Capewell, a Connecticut-based leading provider of proprietary aircraft cockpit, emergency egress, and aerial delivery products for both the commercial aerospace and defense markets. I am very impressed with their manufacturing process and strict adherence to high reliability and quality products, which help ensure pilot and troop safety worldwide.

Speaker Change: After based on our conversations with our customers and what they want there.

Speaker Change: Okay, and then here's a question Larry I thought I would ask you. This question, but anybody please jump in.

Larry Mendelson: You continue to be acquisitive, you just did another deal how would you characterize the M&A pipeline.

Larry Mendelson: As it stands today, maybe relative to the prior year or so and is there any change in behavior from private equity folks who are out there with properties to sell.

Larry Mendelson: Yes, Rob this is Eric I'll take that just for a moment of course, a year ago. We were largely focused on why inquiries our largest deal in the history of the company over $2 billion of net consumed a tremendous amount of capital as well as effort.

Eric Mendelson: They also have an excellent staff of people who will fit extremely well within the HIGO family. The WENCORE operations continue to exceed our expectations and we are convinced this was an excellent investment for HIGO. WENCORE's entrepreneurial culture and a record of producing high quality products continues to produce winds in the marketplace. Our customers continue to find great value in our larger aftermarket product offerings for the aerospace parts and component repair and overall needs. We continue to operate WENCORE as a standalone business operation. However, we've made very good progress in working together and serving our customers in a combined seamless fashion.

Larry Mendelson: So, but I can tell you that our pipeline today remains incredibly robust we have a lot of projects in the work our acquisition teams.

Larry Mendelson: Our non stop running around the country I think we worked very hard to differentiate ourselves as the buyer of choice.

Speaker Change: And we will cover.

Speaker Change: We'll keep our fingers crossed that.

Speaker Change: Some of these will come to fruition, but theres no question that in conversations and I don't want to call out individual businesses, because they have their own respective sellers and reasons for having done dealt with us, but I can tell you that on.

Eric Mendelson: Some examples of how we're now working together include. 1. Utilization of all HIKO and WENCOR PMAs in DERs at all of our repair stations 2. Commercial and defense aftermarket sales cooperation 3. WENCOR E-commerce platform lists all HIKO non-competitive PMAs 4. WENCOR is utilizing HIKO's manufacturing base in particular our specialty products and electronic technologies group to quote new products 5. Engineering and regulatory cooperation 6. Sharing besting class vendors and 7. Driving various back office synergies such as payroll and export compliance that will help offset the cost of additional regulatory compliance such as sorbains oxalate and HIKO's FAA ODA program.

Speaker Change: All of our recent acquisitions.

Speaker Change: I think heico's reputation has been key to getting all of those deals done and has made us a particularly attractive counterparty for our <unk>.

Speaker Change: Sellers and partners.

Speaker Change: And the pipeline remains very very strong.

Speaker Change: Rob I know this is Larry I know you asked the question, but Eric Preempted me.

Speaker Change: So.

What he told you is accurate.

Speaker Change: The pipeline is very full.

And we are looking at.

Actually too many acquisitions right now.

Speaker Change: Taking full time staff.

Speaker Change: I think it's very active.

Speaker Change: We're looking more for.

Speaker Change: Non private equity deals.

Speaker Change: That's more in our.

Speaker Change: This interest.

Although we do see some private equity the problem is their price.

Eric Mendelson: The fight support groups operating income increased 72% to a record 153.6 million in the third quarter of fiscal 24 up from 89.2 million in the third quarter of fiscal 23. The operating income increase principally reflects the previously mentioned net sales growth and then improved growth profit margin partially offset by an increase in intangible asset amortization expense. The improved growth profit margin principally reflects higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product lines.

And when we try to compete normally we can't compete.

Speaker Change: The pricing.

Speaker Change: But we have enough non private equity deals really to fill.

Speaker Change: All that we need.

Speaker Change: So it's for US it's a buyers market right now.

Carlos: Got it got it and just quickly Carlos if I could ask you what the blended organic growth rate was in the quarter. Thank you.

Carlos: You're talking about for the company as all.

Carlos: Yes, so when you factor at all in yes.

Carlos: So all in it was a tick over 7% organic growth for the whole company.

Speaker Change: Okay excellent. Thank you all.

Speaker Change: Thanks, Rob and thanks, Brad Thank you.

Speaker Change: We will take our next question from Bert <unk> with Stifel.

Eric Mendelson: The flight support groups operating margin increased to 22.5 percent in the third quarter of fiscal 24 up from 22.0 percent in the third quarter of fiscal 23. Given that acquisition related intangible amortization expense consumed approximately 270 basis points of our operating margin in the third quarter of fiscal 24, the FSG's cash margin before amortization or EBIDA was approximately 25.2 percent which is excellent in absolute terms and is 180 basis points higher than the comparable flight support group cash margin of 23.4 percent in the third quarter of fiscal 23. I am extremely pleased with these results. The increased operating margin principally reflects the previously mentioned improved growth profit margin as well as lower acquisition costs partially offset by the previously mentioned higher intangible asset amortization expense.

Bert: Hey, good morning, and thank you for the questions.

Bert: Good morning burden.

Speaker Change: Maybe Eric just to start with you on the SSG side.

Speaker Change: You know I think mentioned sort of accelerating growth organic growth of 15% extremely impressive.

Speaker Change: Last quarter, you had talked about the after market.

Speaker Change: Play some part side being I believe 21% growth and you called out about a quarter of that being price.

Speaker Change: With the discount relative to OEM being close to the widest you've ever seen it. So I'm curious how did that change in the fiscal third quarter was pricing increases an element of that growth or does it continue to be more of a volume story.

Speaker Change: Yes, hi.

Bert: Hi, Bert.

Bert: So.

Bert: The short answer it's more of a volume story.

Speaker Change: Less so this quarter it was 17%.

Bert: For the.

Bert: Yeah.

Bert: The parts and the parts business and last quarter I think it was it was 21 as you mentioned.

Bert: Most of that is volume.

Bert: Some of it is price, but I would say, it's definitely mostly mostly on the volume side, we've been very.

Bert: Victor Mendelssohn, ICO's Co-President and President of ICO's Electronic Technologies Group, and Carlos McCal, our Executive Vice President and CFO.

Victor Mendelson: Now I would like to introduce Victor Mendelssohn, co-president of HICO and president of HICO's electronic technologies group to discuss the third quarter results of the electronic technology's group. Victor? Thank you, Eric. The electronic technologies groups net sales were $322.1 million in the third quarter of fiscal 24, as compared to $325.9 million in the third quarter of fiscal 23. The flight net sales decrease principally reflects lower other electronics and medical products, net sales, partially offset by increased defense space and aerospace products, net sales.

Bert: <unk>.

Bert: Firm.

Bert: Passing along our price increases to our customers and we've got to make sure as our costs have gone up and why.

Bert: That flavor special processes material purchase product whatever it is we've got to make sure that we get that passed along so definitely the vast majority of that is.

Bert: Volume.

Bert: <unk>.

Bert: And then a much lesser extent would be.

Bert: Price.

Eric Mendelson: Eric as you think forward for FSFR for I guess, just for the aftermarket replacement parts business.

Victor Mendelson: This is in line with our expectations, as we've commented on earnings, conference calls over the last few quarters and is consistent with inventory destocking at some customers. We continue to anticipate quarterly volatility in the ETG's defense net sales, but the overall trend remains very positive. As expected, other electronic net sales were lower during the third quarter of fiscal 24 compared to the third quarter of fiscal 23. We believe these order trends in these markets have bottomed and we are seeing improved orders in some of our companies in these other markets.

Speaker Change: No. It was brought up earlier on the airline side Youre seeing trimming capacity lower yield. So it doesn't sound like that's had any impact yet do you think there is an opportunity to gain meaningful share. If we go into a little bit of a slowdown just because it opens up.

Speaker Change: Alright, I guess it makes the portfolio more attractive to customers that may be bought PMA parts in sort of a lower percentage or do you think that becomes sort of the element where pricing may be balances with volume I'm just curious how you're thinking about maybe in the next several quarters, if things do slow down.

Speaker Change: Yes, again, we haven't seen signs of any slowdown to date as a matter of fact quite the contrary.

Victor Mendelson: These other markets typically equate to between a quarter and 30% of our sales. I continue to expect an overall return to growth in these end markets and businesses during the first half of fiscal 25. The ETG's record backlog in strong overall orders support our optimism and, as the non-A and D markets improve, we expect a healthy tailwind into our next fiscal year. Orders for commercial aviation and defense products have been very robust and we are very pleased with our businesses' performance, like at Excelium, which continues to be a strong acquisition meeting our performance expectations, including growing its profit margins.

Speaker Change: Sort of surprisingly to the contrary.

Speaker Change: And.

Speaker Change: With regard to normally win when there is a slowdown obviously volumes drop and that is when we pick up additional market share thats when customers realize that they've got to take advantage of our additional cost savings parts and repairs and we pick up market share at that point then.

Speaker Change: Of course, when the economy recovers, we recover even stronger than most because we picked up market share.

Speaker Change: The customers are very.

Speaker Change: I think very excited about the HEICO product line, they want to have competition, they're demanding competition.

Victor Mendelson: Further, our order book and quotation activity for fiscal 26 is building nicely and I did mean to say fiscal 26 in addition to 25 of the course, which augments our optimism for later periods as well. The electronic technologies groups operating margin improved 23.5% in the third quarter of fiscal 24 up from 22.8% in the third quarter of fiscal 23. I also note that before acquisition related intangibles amortization expenses, our operating margin was above 27% as those intangibles amortization expenses consume around 400 basis points of our margin.

Speaker Change: And HEICO provides very fair competition in that regard. So I think that we're going to we're going to do very well and for sharp pickup market share get additional parts and repairs designed in when that.

Speaker Change: If that occurs.

Speaker Change: Very helpful and just one last question for Victor.

Speaker Change: Victor if we look at the Atg business over the last several quarters sort of bounced around from positive to negative on the organic side sort of averaged about zero percent.

Speaker Change: That business is meant to be sort of longer term low to mid single digit organic.

Speaker Change: I guess sort of a two part question one I think earlier in the year you were expecting this more significant ramp in the back half I'm just curious what changed that outlook and then two as you go into FY 'twenty five is there a potential that growth sort of exceed your longer term growth target just as a function of recovering.

Victor Mendelson: And that's how we judge our businesses as that most closely correlates to our catch. So when we look at how our businesses are doing on an operating basis, we are very pleased with the overall margins and their continued improvement. The operating margin increased principally reflects the previously mentioned improved gross profit margin partially offset by a lower level of SGNA efficiencies from the call back over to Larry Mendelssof.

Bert: Yes, Thank you Bert.

Yeah. Good question I don't think.

Bert: Where we are in and so far in the back half of the year.

Bert: It has really been a surprise to us I think we tried to hint in the second quarter call that we thought.

Bert: Yeah.

Bert: For example margins were higher in that period that we would look for an average over the course of the year.

Lawrence Mendelson: Thank you, Victor. Now for the outlook. As we look ahead to the remainder of fiscal 24, we remain optimistic about achieving net sales growth for both FSG and ETG. This growth is expected to be largely fueled by the contributions from our fiscal 23 and 24 acquisitions, along with sustained demand for the majority of our products. Additionally, we are committed to ongoing product and service innovation, further market penetration, and maintaining our financial strength and flexibility.

Bert: So it's not really too far out of line maybe slightly.

Speaker Change: We're doing the budgets for fiscal 'twenty, five, but when I look at our backlogs and I look at our order rate.

Speaker Change: It feels to me as though we would have a stronger growth rate in fiscal 'twenty five again, it's a little premature for me to say that with certainty because our companies do their budgets now and submit them in early October so I'm waiting on those but right now that's how it feels to me yes.

Speaker Change: Thanks very much.

Speaker Change: Thank you.

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

Larry Solow: Now, before reviewing our operating results, I'd like to take a moment and thank all of high ghost talented team members for their contribution to our record setting performance.

Lawrence Mendelson: In conclusion, I want to, again, express my gratitude to the exceptional team members for their unwavering support and dedication to HEICO. Our strategy of building a diversified portfolio of outstanding businesses continues to deliver positive outcomes for our shareholders. Our key markets are very strong, and in fiscal 24 is shaping up to be another successful year. Thank you, as shareholders, for your continued trust, and as I mentioned before, I remain very optimistic about the future for HEICO.

Larry Solow: Good morning, Larry Thanks, So much good morning, everybody. Thanks for taking the questions and congrats on a really impressive growth.

Larry Solow: And Victor it sounds like some good bookings growth for.

Speaker Change: Your continued focus on exceeding customer expectations and operational excellence translated into excellent results for our shareholders, and I continue to be very optimistic about the future of HeICO.

Speaker Change: For your side of the business.

Eric Mendelson: It looks like we'll be having pulses. Okay couple a couple of quarters upcoming I guess a question Eric for you just a couple of thank you for some of the detail on the one core.

Speaker Change: It sounds like you are certainly getting it looks like some revenue synergies and stuff combining a lot of.

Speaker Change: Over the past 16 quarters, we've experienced incredible growth in our commercial aviation markets after emerging from one of the darkest times in aerospace history, when air travel slowed to a crawl amid COVID-19 pandemic.

Speaker Change: Common services or whatnot I'm, just curious like I don't know if you could break this out but how does the organic growth at one core.

Speaker Change: I couldn't be proud of the professionalism and tenacity of our team members who demonstrated serving our customers during this period of rapid growth.

Speaker Change: Kept up or even exceeded sort of the overall growth of the company.

Speaker Change: SSG over the last few quarters.

Speaker Change: I would say, it's very consistent with with MSG I mean, we look at the various when core businesses.

Samara: And now we'll open the floor to questions. Thank you. If you would like to ask a question, please signaled by pressing star one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Speaker Change: And their organic growth is very consistent I mean some are.

Speaker Change: There can be widow anomalies here or there, but in general they're doing they're doing very well and consistent with the legacy HEICO businesses.

Speaker Change: It has the overall obviously the PMA parts offering has increased a one plus one.

Speaker Change: Certainly equals two but has it increased even more.

Speaker Change: Increased their overall offering of parts is that helped growth.

Robert Spingarn: We'll take our first question from Robert Spingarn with Melius Research. Well, good morning, and a very nice quarter. Thank you very much, Rob. Good morning to you. Thank you. A couple. I thought I'd start with the end markets, and Eric, FSG's organic growth rate accelerated relative to the prior two quarters. And I was wondering, does this reflect the maturing integration that you just talked about between HEICO and WENCORE? Is this simply a function of the market, maybe demand strengthening in the end market and after market?

Speaker Change: In the last few quarters.

Speaker Change: Yes. It has the overall offering has grown.

Speaker Change: And we.

Speaker Change: We've really seen the.

Speaker Change: The advantages of that and frankly, the customer enthusiasm around it.

Speaker Change: Gotcha.

Speaker Change: Question, well it sounds like the cable acquisition nice little tuck in any more color on that it looks like I guess, it's going to be in specialty products. So a little more niche.

Speaker Change: Their ability to meet the challenge of accelerated growth is commendable, and this includes the remarkable win-core team members who joined HeICO family last year.

Speaker Change: In addition, I am pleased with the progress and effort of our team members have made serving customers in the defense industry.

Speaker Change: Higher margin stuff, maybe a little bit more.

Speaker Change: Some choppy sales bigger quarter, sometimes right.

Speaker Change: This is my expectation that growth in this global industry will continue despite who wins the upcoming election.

Speaker Change: How to look at that.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: And the softer results we realize over the past few years appear to be in the rearview mirror.

Speaker Change: It's a terrific business.

Robert Spingarn: Yeah, I think that's a great question, Rob, and I've spent a lot of time in business reviews, and with our sales folks, in particular, over the last month going over a lot of the details. There's no question that the market remains strong, but I do think the reason why, you know, the incredible 17% growth rate was so outstanding, is because of really two factors. One, we continue to win in the marketplace.

And they basically have two main product lines, one is the commercial and military.

Speaker Change: And now I'd like to summarize the highlights of our third quarter fiscal 24 record results. Consolidated operating income and net sales and the third quarter of fiscal 24 represent record results for HeICO and improved by 45% and 37% respectively as compared to the third quarter of fiscal 23.

Speaker Change: I'm, sorry, the commercial and military aerial.

Speaker Change: I think you'll all agree that those are astounding results.

Speaker Change: Business. So basically when you are the cockpit egress business.

You need to have basically a way out of the cockpit in case, the cockpit door is blocked or.

Speaker Change: Also cargo aircraft or.

Speaker Change: Consolidated net income increased 34% who erected $136.6 million for 97 cents per diluted share in the third quarter of fiscal 24. And that was up from 102 million was 74 cents per diluted share in the third quarter of fiscal 23.

Speaker Change: Tankers need.

Robert Spingarn: And you know, HEICO is an accumulation or a combination of a lot of individual businesses working as hard as they can, planning years in advance, developing these products, having them on the shelf, and being able to hit the demand and get them sold when the market needs them. So I think that's number one, really. Everybody's sort of, if you will, all the unsung heroes who are working their rear ends off every day to make this happen.

Speaker Change: The flight support group set all time quarterly net sales and operating income records in the third quarter of fiscal 24, improving 68% and 72% respectively over the third quarter of fiscal 23. The increase is principally reflect strong 15% organic growth mainly attributable to increase demand for the flight support groups to commercial aerospace products and services.

Speaker Change: Egress from the aircraft in the event of a problem and they have a very.

Speaker Change: Sophisticated well time tested approach.

Speaker Change: <unk>.

Speaker Change: <unk>, which is in a number of commercial and military aircraft, which is really key.

Speaker Change: Collins, and the impact from our profitable fiscal 23 and 24 acquisitions. Consolidated Ibiza increased 45%, the 261.4 million in the third quarter of fiscal 24, and that was up from 179.8 million in the third quarter of fiscal 23.

Speaker Change: And really the only way to get people out of the aircraft in the event they need to escape and the standard slides are either inactive or.

Robert Spingarn: So that's probably the first reason. The second would definitely be due to the addition of WinCore. And the broadening of our product line, I think in speaking with our customers, we are viewed as a much more complete supplier. I mean, HEICO today has transitioned tremendously over the last many decades. And I think our customers are very confident in purchasing additional products from us, whether it's parts, distribution, PMA, repair. And I think we're growing our market share.

Speaker Change: Our net debt to Ibiza ratio was 2.1 more times as of July 20, 31, 24.

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

Speaker Change: Don't exist on certain types of aircrafts, so thats part of their business and then the other part of their business is the area of ascent piece, where.

Speaker Change: Whether you're in.

Speaker Change: Our excellent operating results have allowed us to early achieve the forecast we made a year ago that our net debt to Ibiza ratio would return to a historical level of about 2 times within roughly 1 year to 18 months following the one core acquisition, and that's excluding the impact of further acquisitions.

Speaker Change: Parachuting out of an airplane or if they're dropping.

Speaker Change: Tanks are various equipment that is <unk>, <unk> or <unk> or whatever it is you've got fairly sophisticated parachutes that attached to it and there are various attachment mechanisms and Ariel drop mechanisms, which are really critical. So we think that this is a great business it's really.

Speaker Change: Our acquisition pipeline is extremely robust with opportunities in both flight support and ETG, and we intend to follow our time-tested strategy of opportunistic acquisitions that continue to expand the cash generating ability of HICO.

Speaker Change: Cash flow provided by operating activities increased 47%, the 214 million in the third quarter of fiscal 24, and that was up from 145.9 million in the third quarter of fiscal 23.

Speaker Change: In July 24, we increased our regular semi-annual cash dividend by 10% to 11 cents per share. This represented our 92nd consecutive semi-annual cash dividend since 1979.

Robert Spingarn: So it's really, I think, yes, a strong market, but more, I think really focusing on the detail by our businesses and the broadening of the product line Okay, and then notwithstanding the strong growth, you know, there have been some airlines out there talking about over capacity that's been a bit of a theme here. Are you seeing any evidence of that in the order patterns so far? No, we really don't actually, and as a matter of fact, the number of airlines had sort of trimmed back their purchases.

Speaker Change: Appreciated by its customers.

Speaker Change: And.

Speaker Change: And frankly as the pioneer in this in this business in the 19 forties was the original.

Speaker Change: Company that designed the device which permit.

Speaker Change: Paratroopers too.

Speaker Change: Jump out of airplanes to detach.

Once they hit the ground and not get dragged as a result of the parachute.

Speaker Change: And so that's a very strong business, it's a very niche business and.

Speaker Change: And Thats why we thought it fit very well in our specialty products group and of course, our specialty products is a lot of connection to the overall.

Robert Spingarn: They, if you will, in hindsight, I think over ordered a bit. In 2023, you know, took more than they needed in 2023, so we do have anecdotal, you know, evidence of certain customers are cutting back this year, but that was really offset by strength that other customers. So, I think we, we continue to do very well. And that really, you know, that gets to the sort of the beauty of the Heiko model and that we've got all these individual business units.

Speaker Change: The other parts of support so I think it's a very good fit.

Speaker Change: Yes.

Speaker Change: We're very excited about it.

Speaker Change: Excellent I guess just last question and then pass the call. It's just just on the margin you mentioned.

Speaker Change: Respectively on the FSC and atg up to 25% and 27% on a cash operating margin.

Speaker Change: Perhaps not so much in the next quarter or two but where do you see those margins over the next three to five years I mean can that continue to tick up on the cash side.

Robert Spingarn: It's who have to control their own destiny. And if they're short in one area, they figure out how to make it up in another area. And this doesn't roll up to my desk after the fact. And instead they're doing this real time.

Speaker Change: You look out.

Speaker Change: So the answer to your question is as we continue to grow the volume of the business that you expect will in gout incremental.

Robert Spingarn: So, in summary, no, I mean, the market for us remains quite strong. Okay. And then just on the OE side, both you and Victor have some exposure to commercial OE. Are you seeing any slowdown in orders on the OE side because of the slower than expected production ramps, both at Airbus and Boeing? Or do you continue to ship at the higher targeted rates that they're just taking inventory? Yeah, we've definitely seen a reduction off of forecasts due to their build rates.

Speaker Change: Margin gains.

Speaker Change: And with our history.

Speaker Change: The base of the business grows.

Speaker Change: The amount of overhead needed to support his relative to that growth. It's a little it's a little lower so.

Speaker Change: We will get that if you look back you have.

Speaker Change: Quoted this before if you look back a decade and look at the margin gains.

Speaker Change: That's kind of what I would expect going forward.

Speaker Change: Once we settle into our into our footprint here and the SSG in Atg and I do think.

Robert Spingarn: You know, there's no question Airbus is doing, I think, better than Boeing in that area. But yes, definitely on the commercial OE production things are softer than expected. That of course has been offset by our strengths in the defense side. And we expect that strength to continue into 2025, 2026, and after based on our conversations with our customers and what they want there. Okay. And then here's a question. Larry, I thought I would ask you this question, but anybody, please jump in.

Speaker Change: You're talking about an EBITDA margins. So it's pretty elevated we were happy with it this quarter and I think that as we move forward that should continue to stabilize and eke out improvements.

Alright excellent thanks, everybody.

Speaker Change: Welcome. Thanks.

Speaker Change: Okay.

Speaker Change: We'll take our next question from Peter Amit with Baird.

Peter Amit: Hey, Thanks, Good morning, Larry Eric Victor Carlos.

Peter Amit: Nice results.

Victor: Victor could you talk a little bit about <unk>.

Peter Amit: Talk about some of the booking rates and sort of the confidence in seeing ETD growth thinking about next year, but just maybe some of the end markets that you are seeing is defense.

Robert Spingarn: You continue to be inquisitive. You just did another deal. How would you characterize the M&A pipeline as it stands today, maybe relative to the prior year or so? And is there any change in behavior from private equity folks who are out there with properties to sell? Rob, this is Eric. I'll take that just for a moment. Of course, a year ago, we were largely focused on one course, our largest deal in the history of the company over $2 billion, and that consumed a tremendous amount of capital as well as effort.

Peter Amit: I'd like to now discuss our recent acquisition activity. You may recall in December 23, we announced the acquisition of exclusive perpetual licenses and certain assets from Honeywell International to support the Boeing 737 NG and the trickle 7 cockpit displays and legacy displays product lines, which that total group has been performing extremely well for us. As a result in May 24, we completed a second transaction with Honeywell International, under which we acquired additional licenses and certain assets to further enhance the manufacturing of these new products, including screens for a military variant of the Boeing 737 NG, and triple seven cockpit displays and legacy displays product lines.

Peter Amit: Last week, we announced that our flight support group acquired the aerial delivery and decent divisions of Capewell aerial systems, purchase price of this acquisition was paid in cash, principally using proceeds from our revolving credit facility and we expect this acquisition to be appreciated to our earnings within the first year following the acquisition.

Speaker Change: Assume it's almost 50% of your segment.

Speaker Change: Is that growing mid single digits and it's just the other areas that are seeing some softness or maybe just a little more color there. Thanks.

Speaker Change: Yes.

Peter Amit: At this time, I would like to introduce Eric Mendelson, co-president of ICO, ICO and president of ICO flights of court group and he will discuss the third quarter results of the flight support group, Eric.

Peter Amit: So Peter.

Peter Amit: Thank you very much.

Peter Amit: The the defense part of the business and commercial aviation really.

Peter Amit: The flight support groups net sales increased 68% to a record 681.6 million in the third quarter of fiscal 24 up from 405 million in the third quarter of fiscal 23. The net sales increase reflects the impact from our fiscal 23 and 24 acquisitions and strong 15% organic growth.

Peter Amit: I've been extremely strong experiencing double digit growth.

Peter Amit: And again, that's where some of our longer term bookings really come on the defense side.

Robert Spingarn: But I can tell you that our pipeline today remains incredibly robust. We have a lot of projects in the work, our acquisitions, teams are non-stop running around the country. I think we've worked very hard to differentiate ourselves as the buyer of choice. And we'll keep our fingers crossed that some of these will come to fruition. But there's no question that in conversations, and I don't want to call out individual businesses because they have their own respected sellers and reasons for having dealt with us.

Peter Amit: And I'm seeing some of those fill out beyond 'twenty five.

Peter Amit: As well as some of the quote activity and the order.

Peter Amit: Indications.

<unk> to 'twenty five and beyond.

Peter Amit: So right now.

Speaker Change: Feel like defense is a good leader for us in commercial aviation has really been phenomenal.

Speaker Change: So when I take that together I look at the other markets, which are down.

Speaker Change: Consistent with I think what other people are seeing in these kinds of markets.

Speaker Change: And it looks like those order rates are bottoming out it appears to us that our customers have kind of used up the excess inventory in the orders are coming in.

Robert Spingarn: But I can tell you that on all of our recent acquisitions, I think Haiko's reputation has been key to getting all of those deals done and has made us a particularly attractive counterparty for our sellers and partners. And the pipeline remains very, very... Rob, I know you, this is Larry, I know you asked me the question, but Eric preempted me. So what he told you is accurate. The pipeline is very full and we are looking at actually too many acquisitions right now.

Speaker Change: If you add as sort of six months.

Speaker Change: Lead time on that it gets us into.

Speaker Change: Fiscal 'twenty five and that's why I say I feel like there will be a very nice tailwind from that next year of course, I can't be certain of that but that's just how it feels right now.

Got it and just.

Speaker Change: And is there any impact.

Speaker Change: Peter This is this is Carlos I, just wanted to point out youre not youre not wrong on what you said about 50% of the segment, but right now we're tracking around 40%. So we still have I have mentioned in the past once once the mixed sort of settles down I do expect our defense to become closer to the 50% number.

Robert Spingarn: It's taking full time of a staff and I think it's very active. We're looking more for non-private equity deals. That's more in our interest. Although we do see some private equity, the problem is their price is very high and when we try to compete, normally we can't compete because of the pricing. But we have enough non-private equity deals really to fill all that we need. So it's for us, it's a buyer's market right now.

Speaker Change: Over time right now, we're still a little behind on.

Speaker Change: On the total revenues in this segment being only around 40% for defense this quarter.

Okay. That's that's helpful. And then just Carlos maybe just sticking with you on the leverage it has come down exactly what are you guys kind of thought it would do two one turns.

Speaker Change: How are you thinking about just given that the M&A pipeline.

Speaker Change #100: It's full but your ability to kind of.

Speaker Change #100: One is still delever, what's any any updated thoughts on kind of where you're taking the leverage game.

Carlos: Well I think look.

Carlos: By nature, we're an acquisitive company and we set out an aggressive.

Carlos: Timetable to pay down some of the debt that we had and we've done that I think the opportunities are abound as long as we can keep our leverage.

Robert Spingarn: Got it, got it. And just quickly, Carlos, if I could ask you what the blended organic growth rate was in the quarter. Thank you. You're talking about for the company as a whole. Yeah, so when you factor it all in, yeah. Yeah, so all in, it was a tick over 7% organic growth for the whole company. Okay, excellent. Thank you all. Thanks, Rob. Thank you, Rob. Thank you.

Carlos: The organic net sales growth mainly reflects increased demand across all of our product lines.

Speaker Change #101: Candidly under three.

Speaker Change #101: There's opportunities for us and I think that the goal for US is defined very profitable companies that they don't disrupt that leverage the ones that have real high EBITDA, which have been which has been our history right.

Speaker Change #101: Our high margin businesses. So the more acquisitions, we do with the higher margin the less impact it has on that leverage and that's where I'm steering things when.

Art Souven: We'll take our next question from Art Souven with Steve. Hey, good morning and thank you for the questions. Good morning, Burton. Maybe Eric just to start with you on the FSG side. You know, I think mentioned sort of accelerating growth organic growth of 15% extremely impressive. Last quarter, you had talked about the aftermarket replacement part side being I believe 21% growth and you called out about a quarter of that being price with the discount relative to OEM being close to the widest you've ever seen it.

Speaker Change #101: When we talk internally about about these deals.

Speaker Change #102: Terrific I'll leave it there thanks guys.

Speaker Change #102: Yes.

Speaker Change #102: As we continue to experience excellent organic growth within the FSG, we have also been highly successful in supplementing growth through acquisitions. Last week, we acquired Capewell, a Connecticut-based leading provider of proprietary aircraft, cockpit, emergency egress and aerial delivery products for both the commercial aerospace and defense markets. I am very impressed with their manufacturing process and strict adherence to high reliability and quality products, which help ensure pilot and troop safety worldwide.

Speaker Change #102: We will take our next question from David Strauss with Barclays.

Speaker Change #102: Yes.

David Strauss: Good morning, David.

David Strauss: Good morning, Thanks for taking the question.

David Strauss: Wanted to ask about working capital.

Speaker Change #104: Lastly, we had a fairly big inventory build this year fairly big inventory build how are you thinking about potentially.

Speaker Change #105: Slower growth or working capital or maybe working capital just coming down on an absolute basis from here.

Art Souven: So I'm curious, how did that change in the fiscal third quarter was pricing, you know, increases an element of that growth? Or does it continue to be more of a volume story? Yeah, hi, Burton. So the short answer, it's more of a volume story. I think last, so this quarter it was 17% for the parts and the parts business. And last quarter, I think it was 21, as you mentioned, most of that is volume.

Speaker Change #105: Hey, David This is Eric I'll start out with sort of the Big picture and then Carlos to get into the specifics on the financial.

Speaker Change #106: HEICO has always been focused on customer service and making sure that we capture all of the incremental sales that we can capture and if you look at coming out of Covid HEICO recovered much quicker than most.

And as a result of not cutting our people not trimming our inventories too much and bottom line, we were able to support the market when others Werent and that's really been a huge HEICO advantage. So I can tell you from an operational perspective, Victor and I are very very focused on all of our.

Art Souven: Some of it is price, but I would say it's definitely mostly on the volume side. We've been very firm about passing along our price increases to our customers. And we've got to make sure as our costs have gone up, and you know, whether that's labor or special processes, material, purchase product, whatever it is, we've got to make sure that we get that passed along. So definitely the vast majority of that is.., of Value, and then much lesser extent would be the price.

Victor: Business units reviewing working capital understanding specifically.

Victor: How the inventory or the receivables have increased obviously receivables that's up due to the huge increase in sales.

Victor: But with regard to inventory our businesses have been really outstanding in terms of having the correct inventory on the shelf there are a lot of companies where their inventory blows up and they've got the wrong stuff on the shelf and they can't sell it and then people find out after the fact that it's a problem HEICO has always been very very care.

Victor: So not to do that and as a result, we have very very robust inventory reserve policies to make sure that we're being very proactive and we make sure that we have the right inventory. So I think that there is no question that there is a big internal focus on inventory, we want to slow the growth.

Art Souven: Eric, as you think forward for FSR, I guess just for the aftermarket, replace from parts business, you know, I know it was brought up earlier on the airline side, you're seeing trimming capacity, lower yields, it doesn't sound like that's had any impact yet. Do you think there's an opportunity to gain meaningful share if we go into a little bit of a slowdown just because it opens up, or I guess it makes the portfolio more attractive to customers that may be bought PMA parts in sort of a lower percentage, or do you think that becomes sort of the element where, you know, pricing maybe balances with volume, just curious how you're thinking about maybe the next several quarters if things do slowdown.

Victor: But it is really key to our business and frankly, when you look at the 17% organic growth that we had in the aftermarket business.

Victor: That was really outstanding and that can only be accomplished through increased inventories, but carlos who get into the specifics for you.

Art Souven: Yeah, again, we haven't seen signs of any slowdown to date as a matter of fact, quite the contrary, sort of with regard to normally when there is a slowdown, obviously volumes drop and that is when we pick up additional market share. That's when customers realize that they've got to take advantage of our additional cost savings parts and repairs, and we pick up market share at that point. And of course, when the economy recovers, we recover even stronger than most because we've picked up market share.

Carlos: Don't know how much more I can add to that I would say that.

Carlos: The rate of increase in inventory spend has come down relative to the growth in the business I mean, our sales are for the quarter up 37% comparatively and our and our use our inventory spend is not not ramping at that pace I'm happy with that I think what I mentioned earlier in the year David.

Carlos: We had a fair amount of.

Carlos: Orders outstanding on firm commitment inventory.

Carlos: Some of our subsidiaries had made two years ago, just because of lead times and so we made good on those we're not the type of company that.

Carlos: This disrupts our vendor base or does bad things of our vendor base to take advantage of a moment in time.

Carlos: They also have an excellent staff of people who will fit extremely well within the ICO family.

Art Souven: The customers are very, I think, very excited about the HIKO product line. They want to have competition, they're demanding competition, and HIKO provides, you know, very fair competition in that regard. So I think that we're going to do very well. And for short, pick up market share, get additional parts and repairs designed in when that, if that occurs. Very helpful.

Carlos: To be partners with our vendors and make sure that we're good to them as we expect them to be good so.

Carlos: The Winkler operations continue to exceed our expectations and we are convinced this was an excellent investment for ICO.

Speaker Change #107: The rate of those firm orders has come down we're now sort of beyond that and I do expect use of working capital, particularly in inventory to come down a little bit, but it will continue to grow a little bit as we as the business grows as Eric pointed out so.

Speaker Change #107: Winkler's entrepreneurial culture and a record of producing high quality products continues to produce winds in the marketplace.

Speaker Change #107: Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overall needs.

Eric Mendelson: Isn't displeased this quarter with the working capital use we expected it and again the.

Eric Mendelson: We continue to operate Winkler as a standalone business operation. However, we've made very good progress in working together and serving our customers in a combined seamless fashion.

Eric Mendelson: Some examples of how we're now working together include 1.

Art Souven: And just one last question for Victor. Victor, if we look at the ETG business over the last several quarters, you know, sort of bounced around from positive to negative on the organic side, sort of averaged about 0%. I think that business is meant to be sort of longer term load amid single digit organic.

Eric Mendelson: Utilization of all HEICO and WENCORE PMAs in DERs at all of our repair stations 2.

Eric Mendelson: Rate of change in that inventory spend is down considerably compared to the first half of the year.

And also David just to add one other little anecdote of course, the purchase of the 737 Mg and Triple seven display unit business was the purchase of a product line and as a result, a good chunk of the inventory increase was due to that so it really is an acquisition into new.

Art Souven: I guess sort of a two-part question. One, I think earlier in the year, you were expecting this more significant ramp in the back half, so I'm just curious what changed that outlook. And then two, as you go into FY25, is there a potential that grows sort of exceed your longer term growth target just as a function of recovering? Yeah, thank you, Bert. The good questions. I don't think where we are, and so far in the back half of the year, has really been a surprise to us.

Eric Mendelson: Commercial and defense aftermarket sales cooperation 3.

Eric Mendelson: Business, it's all good inventory.

Eric Mendelson: But that that obviously shows up as inventory.

Eric Mendelson: You have to sort of take that into account when that stripped out.

Eric Mendelson: The increase is much smaller.

Speaker Change #108: Great great. Thanks for the detailed answer.

Speaker Change #109: The other question I had on SSG margin.

Art Souven: I think we tried to hint in the second quarter call that we thought, you know, for example, margins were higher in that period that we would look for an average over the course of the year. So it's not really too far out of line, maybe slightly. We're doing the budgets for FY25, but when I look at our backlogs, and I look at our order rate, it feels to me as though we would have a stronger growth rate in FY25.

You talked about the year over year improvement, but.

Speaker Change #110: Margins did drop.

Speaker Change #111: GAAP margins did drop a little bit.

Speaker Change #110: Sequentially.

Speaker Change #112: What drove that 50 basis point drop sequentially was that was that mix or something else.

Speaker Change #113: There is.

David Strauss: I think David.

David Strauss: What we've told folks theres nothing unusual about what's happening in the margins sequentially I think what we've told folks is that we expect the segment to run between.

Art Souven: Again, it's a little premature for me to say that with certainty because our companies do their budgets now and submit them in early October, so I'm waiting on those. But right now, that's how it feels to me. Yes. Thanks very much.

David Strauss: 22%.

David Strauss: Maybe as high as 23 as it has been in the last quarter.

Unknown Executive: Thank you.

David Strauss: I don't think theres any unusual going on its ebbs and flows if you have a little shift in mix as Eric pointed out some of the commercial business was down as specialty products.

Larry Solow: Take our next question from Larry Solow with CUJS Securities. Good morning, Mary. Thanks so much. Good good morning, everybody. Thanks for taking the questions and congrats on really impressive growth and even Victor sounds like some good bookings, growth for your size business. It looks like we'll be having a couple of quarters of coming. I guess a question to Eric for you, just a couple. Thank you for some of that detail on the Wendt Corps doll.

David Strauss: The parts business is doing very well that is margin helpful. The.

Our repair business is growing also that's a little bit less accretive than the parts business. So youre going to have puts and takes as we as we get the business.

David Strauss: To sort of settle into the vertical footprints of the segments. So I wouldn't look there is no one times or odd things going on in there, but David. This is Eric also the way that I look at it from an operating perspective is a year ago, our EBITDA margin or what we call. The flight support group cash margin in the third.

David Strauss: WENCORE e-commerce platform lists all HEICO non-competitive PMAs 4. WENCORE is utilizing HEICO's manufacturing base in particular our specialty products and electronic technologies group to quote new products 5.

David Strauss: Engineering and regulatory cooperation 6.

Larry Solow: So it sounds like you are certainly getting, it looks like some revenue synergies and stuff combining a lot of common services and whatnot. I'm just curious, I don't know if you could break this out, but has your organic growth at Wendt Corps kept up or even exceeded sort of the overall growth of the FSG over the last few quarters? I can see it's very consistent with FSG. I mean, we look at the various Wendt Corps businesses and their organic growth is very consistent.

David Strauss: Quarter was 23, 4% this year, despite the acquisition of <unk>, which was at a sort of a lower cash margin.

David Strauss: Sharing besting class vendors and 7.

Speaker Change #114: We've been able to bring to increase the cash margin up a 180 basis points to 25, 2%.

Speaker Change #114: Driving various back office synergies such as payroll and export compliance that will help offset the cost of additional regulatory compliance such as Sorbenz Oxley and HEICO's FAA ODA program.

Speaker Change #114: The fight support groups operating income increased 72% to a record 153.6 million in the third quarter of fiscal 24 up from 89.2 million in the third quarter of fiscal 23. The operating income increase principally reflects the previously mentioned net sales growth and then improved growth profit margin partially offset by an increase in intangible asset amortization expense. The improved growth profit margin principally reflects higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product lines.

Speaker Change #114: So I think those numbers are really outstanding and this is Carlos says they just bounce around I mean, we that's why we say it's going to be within a certain range, but thats just standard noise.

Larry Solow: I mean, some are, you know, there can be little anomalies here or there, but in general, they're doing very well and consistent with the legacy heiko businesses. Has the overall, obviously, the PMA Parts offering has increased to 1 plus 1, certainly equals 2, but has it increased even more and have you increased your overall offering of parts? Does that help growth in the last few quarters? Yes, it has. Then the overall offering has grown, and we've really seen the advantages of that and frankly, the customer enthusiasm around it.

Speaker Change #115: Got it okay. Thanks very much.

Speaker Change #116: Thank you.

Speaker Change #116: We'll take our next question from Pete Skibinski with Alembic Global.

Pete Skibinski: Hey, good morning, guys.

Pete Skibinski: I guess ill just start with Eric Eric last quarter, you guys talked about the supply chain negatively impacting the repair business and I think maybe it sounds like it did a bit this quarter as well just because it sounds like parts kind of drove the business. So can you talk through kind of do you see any light at the end of the tunnel, there or maybe more specifically.

Speaker Change #118: What's going on with the supply chain.

Eric Mendelson: Yes, I would say at peak, we definitely are supply chain problems all over the business.

Eric Mendelson: Just a question. Well, it sounds like the K-Block position, nice little tuck in. Any more color in that? It looks like I guess it's going to be in specialty products. A little more nichey, higher margin stuff, maybe a little bit more, you know, some choppy sales, bigger quarters sometimes, right? Is that kind of how to look at that? It's a terrific business and they basically have two main product lines. One is the commercial and military, oh, I'm sorry, the commercial and military aerial descent business.

Speaker Change #119: Our vendors are challenged there is a huge demand out there.

Speaker Change #120: Getting we really got to be on top of your supply chain you got to be on top of your vendors to make sure that you are prioritized and that they do with what they expect we still have a large backlog of past due.

Speaker Change #120: And.

Speaker Change #120: Frankly, that's driven by certain vendors are many vendors and ability to produce according to their commitments. So that continues to be a struggle and frankly I don't see a tremendous amount of improvement in the in the aviation supply chain basically demand is just out.

Eric Mendelson: So basically, when you are the cockpit egress business, you need to have basically a way out of a cockpit in case the cockpit door is blocked or also cargo aircraft or tankers need egress from the aircraft in the event of a problem. And they have a very sophisticated well-timed, you know, appreciated product, which is in a number of commercial and military aircraft, which is really key and really the only way to get people out of the aircraft in the event they need to escape and the standard slides are either inactive or don't exist on certain types of aircraft.

Speaker Change #121: Stripping supply a lot of people retired.

Speaker Change #121: Business is shut down some businesses vast there if you will special processes.

Speaker Change #121: Despite.

Speaker Change #121: Everyone. Knowing that this is the high tech industry. There are a lot of I would say less documented processes out there with suppliers.

Speaker Change #121: And.

Speaker Change #121: When they didn't need to produce for a period of time largely as a result of certain large Oems.

Speaker Change #121: Ripping out all their orders very quickly those folks retired and a lot of these special processes.

Speaker Change #121: Went away on documented and the industry has really struggled and I think this is why if you look at the air Framers. The engine manufacturers. They are really really struggled as a result of.

Eric Mendelson: So that's part of the and then the other part of their business is the aerial descent piece where whether you're parachuting out of an airplane or if they're dropping tanks or various equipment out of C-130s or C-17s or whatever it is, you've got fairly sophisticated parachutes that attach to it and there are various attachment mechanisms and aerial drop mechanisms, which are really critical. So we think that this is a great business, it's really appreciated by its customers and frankly is the pioneer in this business and since the 1940s was the original company that designed the device which permit paratroopers to jump out of airplanes and to detach once they hit the ground and not get dragged as a result of the parachute and so that's a very strong business, it's a very mitchy business and that's why we thought it fit very well in our specialty products group and of course our specialty products has a lot of connection to the overall, you know, to the other parts of light support. So I think it's a very good fit. We're very excited about it.

HEICO: Their actions and basically slashing the supply chain the way. They did this is why HEICO, we fought like Hell to keep our people to lay off as few as possible to figure out how people would go to reduce schedules because we knew that when the industry came back we wanted to make.

HEICO: Sure that our most valuable asset was going to come back and I can tell you that there are companies out there, who just went and cut 40% 50% of their workforce is not on a temporary basis, but on a permanent basis.

HEICO: And as a result, when they go back and they try to hire these folks they can't get them back because some have retired some are pissed off all sorts of reasons. So.

HEICO: It's a long road back and I think that's why the major manufacturers are having a big big problem.

HEICO: Okay.

HEICO: Just go forward do you expect the parts business to grow faster because that business youre less beholden to suppliers versus the repair business.

Speaker Change #123: I wouldn't.

HEICO: Hi.

Speaker Change #124: It is hard to say, which will grow faster.

Speaker Change #125: We're pretty confident of our growth in both.

Speaker Change #126: There is no question that when you ship individual parts you are less impacted by a particular suppliers inability to supply because you can ship all the other parts that you have in stock, whereas when you're overhauling a component there.

Speaker Change #126: The flight support groups operating margin increased to 22.5% in the third quarter of fiscal 24 up from 22.0% in the third quarter of fiscal 23. Given that acquisition related intangible amortization expense consumed approximately 270 basis points of our operating margin in the third quarter of fiscal 24, the FSG's cash margin before amortization or EBIT was approximately 25.2%, which is excellent in absolute terms and is 180 basis points higher than the comparable flight support group cash margin of 23.4% in the third quarter of fiscal 23.

Carlos Macau: Excellent. I guess just last question, pass for Carlos, just on the margin, you mentioned respectfully on the FSC and ETG up to 25 and 27% on the CAS operating margin. Perhaps not so much in the next quarter, too, but you know, what do you see those margins over the next three to five years? I mean, can they continue to take up on the CAS side? You look out. So the answer to your question is, as we continue to grow the volume of the business, we expect to look out incremental margin gains consistent with our history, you know, as the base of the business grows, you know, the amount of overhead needed to support is relative to that growth.

Speaker Change #125: Your line replaceable units.

Speaker Change #125: I am extremely pleased with these results.

Speaker Change #125: You can only ship the component if you have all the parts. So if there is a bill of material of 200 parts and Youre missing one youre not shipping that unit, so that that creates complications and of course when youre building a complex assembly like an airplane or an engine that you have that problem in spades. So.

Speaker Change #125: The increased operating margin principally reflects the previously mentioned improved growth profit margin as well as lower acquisition costs partially offset by the previously mentioned higher intangible asset amortization expense.

Speaker Change #127: But I think all of our businesses are.

Speaker Change #127: Are performing quite well, it's just that there is plenty of past due backlog and sales actually could be even higher if we if we had those parts in from our suppliers.

Carlos Macau: It's a little, it's a little lower. So I expect we'll get that. If you look back, you know, I've quoted this before. If you look back a decade and look at the margin games, you know, over that, that's kind of what I would expect going forward. Once we settle into our, into our footprint here in the FSC and ETG, and I do think, you know, you're talking about an EBITDA margin. So it's pretty elevated. We were happy with it this quarter. And I think that as we move forward, that should continue to stabilize any kind of improvements.

Victor: Okay. That's helpful. I appreciate that and if I could just ask one to Victor Victor you touched on it but I was wonder if you can talk more about the medical and other area in atg.

Speaker Change #128: I know, it's almost if we could bifurcate it because I know the medical portion had that.

Victor: Covid type surge and now it's kind of normalizing I imagine in the next quarter or two that will kind of normalize.

Unknown Executive: Great. Excellent. Thanks, everybody. Welcome. Thanks.

Is the broad economy economy negatively impacting the other portion of medical and other or are you not.

David Strauss: We'll take our next question from Peter Armit with Baird. Thanks. Good morning, Larry. Victor, gross. Nice, nice, nice results. Victor, could you talk a little bit about, you know, you talked about some of the booking rates and sort of the competence and sorry, seeing ETG growth thinking about next year, but just, you know, maybe some of the end markets that we're seeing is defense. I assume it's almost 50% of your segment.

Speaker Change #129: Now I would like to introduce Victor Mendelssohn, co-president of HICO, and president of HICO's Electronic Technologies Group to discuss the third quarter results of the Electronic Technologies Group.

Speaker Change #129: Is that growing more strongly the medical is.

Speaker Change #129: Thank you, Eric.

Speaker Change #129: The Electronic Technologies Group's net sales were $322.1 million in the third quarter of fiscal 24 as compared to $325.9 million in the third quarter of fiscal 23.

Yes, I think what happened in medical.

Speaker Change #129: The flight net sales decrease principally reflects lower other electronics and medical products, net sales, partially offset by increased defense space and aerospace products, net sales.

Speaker Change #129: Is we had very strong orders.

Speaker Change #129: In.

Speaker Change #130: Actually it 'twenty one 'twenty two at first and the things we make it was it was.

Speaker Change #131: Some of it was stronger than a lot of it was weaker because if you remember we talked about the elective procedures and things like that that that were deferred.

David Strauss: Is that growing, you know, mid single digits and it's just as other areas that are seeing some softness or maybe just a little more color. Yeah, so Peter, the defense part of the business and commercial aviation really have been extremely strong, experiencing double-digit growth. And again, that's where some of our longer-term bookings really come on the defense side. And I'm seeing some of those fill out beyond 25, as well as some of the quote activity in the order indications, again, to 25 and beyond.

Speaker Change #131: And then there was the surge in 'twenty, one and 'twenty, two and even part of 'twenty three.

Speaker Change #131: And then I think what happened was the manufacturers concluded they had too much on the shelves.

And I think maybe some of the orders at the at our customers' level right for the from the end users.

Did not materialize or they were slower.

Speaker Change #132: <unk> had to work through those.

Speaker Change #132: That inventory.

And we're now seeing more.

Speaker Change #132: Of the customers coming back to us, saying Oh.

Can you move things to the right as opposed to moving them out to the right before as opposed to deferring them. There can you pull these in can you ship sooner.

David Strauss: So right now, I feel like the fence is a good leader for us and commercial aviation has really been phenomenal. So when I take that together, I look at the other markets, which are down consistent with I think what other people are seeing in these kinds of markets. And it looks like those order rates are bottoming out. It appears to us that our customers have kind of used up the excess inventory and orders are coming in.

Speaker Change #132: This is in line with our expectations as we've commented on earnings, conference calls over the last few quarters and is consistent with inventory destocking in some customers.

Speaker Change #132: We're going to defer this order, but now we're not going to write we were having discussions like those.

Speaker Change #133: I don't know if it's a sign of the broader economy as well mixed into it. It's a good question and I wish I had great visibility on that but I do know at the very least it seems like a classic case of over ordered.

David Strauss: And if you add a sort of six-month lead time on that, it gets us into fiscal 25. And that's why I say I feel like there will be a very nice tailwind from that next year. Of course, I can't be certain that, but that's just how it feels right now. Any impact? This is Carlos. I just want to point out, you know, you're not wrong on what you said about 50% of the segment, but right now we're tracking around 40%.

Speaker Change #133: We continue to anticipate quarterly volatility in the ETG's defense net sales, but the overall trend remains very positive.

Speaker Change #132: And.

Speaker Change #132: Higher expectations for <unk>.

Speaker Change #132: Let's say the actual health.

Speaker Change #132: Health care delivery from the health care delivery system out of the.

Speaker Change #134: As expected, other electronic net sales were lower during the third quarter of fiscal 24 compared to the third quarter of fiscal 23.

Speaker Change #132: <unk>.

Speaker Change #134: Okay. So it sounds like you think that the Destocking is about over in the next quarter or so it sounds like.

Speaker Change #134: We believe these order trends in these markets have bottomed and we are seeing improved orders in some of our companies in these other markets.

Speaker Change #132: Yes.

Speaker Change #135: These other markets typically equate to between a quarter and 30 percent of our sales.

Speaker Change #135: It feels to me.

Speaker Change #136: I continue to expect an overall return to growth in these end markets and businesses during the first half of fiscal 25.

David Strauss: So we still have mentioned in the past, you know, once the mix sort of settles down, I do expect our defense to become closer to the 50% number over time. Right now we're still a little behind on, you know, on the total revenues in the segment being only around 40% for defense this quarter. Okay, that's helpful. And then just Carlos may just stick with you on the leverage. It's come down exactly where you guys kind of thought it would to 2.1 turns.

Speaker Change #136: I would say where ive seen some signs some green shoots so to speak but it feels more kind of in this bottom or bottoming mode.

Speaker Change #136: The ETG's record backlog in strong overall orders support our optimism and as the non-A and D markets improve, we expect a healthy tailwind into our next fiscal year.

Speaker Change #136: And but we're seeing much higher quote activity.

Speaker Change #136: Usually not always but usually that's an indication that gets followed up by orders not long thereafter.

Speaker Change #136: Orders for commercial aviation and defense products have been very robust and we are very pleased with our businesses' performance, like at Accelium, which continues to be a strong acquisition meeting our performance expectations, including growing its profit margins.

Speaker Change #137: Okay, great. Thanks, guys.

Speaker Change #138: Thank you. Thank you.

We will take our next question from Louis Raffetto with Wolfe Research.

Speaker Change #138: Further, our order book and quotation activity for fiscal 26 is building nicely and I did mean to say fiscal 26 in addition to 25, of course, which augments our optimism for later periods as well.

Speaker Change #138: The electronic technologies groups operating margin improve 23.5 percent in the third quarter of fiscal 24 up from 22.8 percent in the third quarter of fiscal 23. I also note that before acquisition related intangibles amortization expenses, our operating margin was above 27 percent as those intangibles amortization expenses consume around 400 basis points of our margin.

Louis Raffetto: And that's how we judge our businesses as that most closely correlates to our catch.

Louis Raffetto: Hey, good morning, gentlemen.

Speaker Change #140: Good morning, Louis Good morning.

David Strauss: You know, how are you thinking about, you know, just given that the M&A pipeline is full, but your ability to kind of, you know, want to still deliver what's any updated thoughts on kind of where you're taking the leverage. Well, I think, you know, look, by nature, we're an acquisitive company and we set out an aggressive time table to pay down some of the debt that we had. We've done that. I think the opportunities are a bound as long as we can keep our leverage.

Louis Raffetto: Maybe I can just start with I guess, a couple of things I noticed the impairment charge is not something we see from you guys. So just was curious if you had any sort of additional information.

Speaker Change #141: <unk> about that.

Speaker Change #142: That at all related to the change in year <unk>.

Speaker Change #143: Vinci consideration as well just not sure if those.

Speaker Change #144: Kind of offset each other on the income statement or if one was in one spot and one with somewhere else.

Carlos: So this is Carlos.

Speaker Change #145: The impairment charge and the contingent contingency.

David Strauss: Candidly under three. There's opportunities for us and I think that, you know, the goal for us is to find very profitable companies that they don't disrupt that leverage. You know, the ones that have real high EBITDA, which have been, which has been our history, right? I mean, we like high margin businesses, so the more acquisitions we do with the higher margin, the less impact it has on that leverage. And that's where I'm steering things when we talk internally about about these deals. I'll leave it there. Thanks, guys. Yep.

Carlos: Reversal, where both within the <unk> segment.

Carlos: They will refer to different <unk>.

Carlos: Subsidiaries.

Carlos: One was related to.

Carlos: Our business, we have that is in the space industry, where some of the end markets have changed the revenue projections have come down. So this was a trade name impairment. It's just it's essentially math the business is doing fine its just our expectations, but a little higher on the on the business when we bought it as far as putting a value to a trade name.

Carlos: So we came to a conclusion this quarter that.

David Strauss: We'll take our next question from David Strauss with Barclays. Good morning, David. Thanks. Good morning. Thanks for taking the question. One to ask about working capital, you know, last year you had a fairly big inventory build this year, fairly big inventory build. How are you thinking about potentially, you know, floor growth or working capital or maybe working capital just coming down on absolute basis from here. Hey David, this is Eric. I'll start out with sort of the big picture and then Carlos to get into the specifics on the financial.

Carlos: So we would impair that trade name a bit.

Carlos: Contingent earn out was due to changing circumstances at one of our subsidiaries whereby the likelihood that they would meet the earn out objectives was low and it was kind of a cliff earn out. So it was an all or nothing thing so that that occurred this quarter when it became apparent to us.

Carlos: They weren't going to warn that arent out so it's a coincidence they happen at the same time to different subs.

Carlos: So when we look at how our businesses are doing on an operating basis, we are very pleased with the overall margins and their continued improvement. The operating margin increase principally reflects the previously mentioned improved gross profit margin partially offset by a lower level of SGNA efficiencies.

Carlos: They both went through.

Carlos: Selling general administrative expenses, so they kind of offset each other was a bit of a non event.

David Strauss: You know, Heiko has always been focused on customer service. And making sure that we capture all of the incremental sales that we can capture. And if you look at coming out of COVID, Heiko recovered much quicker than most. And as a result of not cutting our people, not trimming our inventories too much in bottom line, we were able to support the market when others weren't. And that's really been a huge Heiko advantage.

Carlos: Turn the call back over to Larry Mendelssof.

Alright, I appreciate the color Carlos.

Speaker Change #146: Thank you, the now for the outlook.

Speaker Change #146: Then maybe just the cable deal I know, it's not hugely material, but anyway just to size at least from a.

Speaker Change #146: As we look ahead to the remainder of fiscal 24, we remain optimistic about achieving net sales growth for both FSG and ETG. This growth is expected to be largely fueled by the contributions from our fiscal 23 and 24 acquisitions, alone with sustained demand for the majority of our products.

Speaker Change #146: Cash usage in the fourth quarter.

Speaker Change #147: Additionally, we are committed to ongoing product and service innovation, further market penetration, and maintaining our financial strength and flexibility.

Speaker Change #147: Yes, I don't think I don't believe theyre going to.

I don't think its going to be a big cash usage I mean will we borrowed for the majority of the acquisition.

Speaker Change #147: It's.

Speaker Change #147: Yes, it should be a good deal forward since a good margin business as.

David Strauss: So I can tell you from an operational perspective, Victor and I are very, very focused on all of our business units, reviewing a working capital, understanding specifically, you know, how the inventory or the receivables have increased obviously receivables that that's up due to the huge increase in sales. But with regard to inventory, our businesses have been really outstanding in terms of having the correct inventory on the shelf. There are a lot of companies where their inventory blows up and they've got the wrong stuff on the shelf and they can't sell it.

Speaker Change #147: In conclusion, I want to again express my gratitude to the exceptional team members for their unwavering support and dedication to HEICO.

Speaker Change #147: As Eric pointed out it does niches stuff in aviation parts.

Speaker Change #147: And some military and so.

Speaker Change #147: More to come we will see a it's not a.

Speaker Change #148: It's an immaterial acquisition for HEICO in total so we're not giving up too much of the financial details or anything like that but.

It is not dilutive to the segment margins if thats part of your question, Yes, I can tell you I'm really excited about this business excited about the technology the people the capability.

Speaker Change #148: Our strategy of building a diversified portfolio of outstanding businesses continues to deliver positive outcomes for our shareholders.

Speaker Change #148: Our key markets are very strong and in fiscal 24 is shaping up to be another successful year.

Speaker Change #149: You look at what.

Speaker Change #149: The two businesses one is the cockpit their aircraft egress now these are really critical very cost effective solutions.

David Strauss: And then people find out after the fact that it's a problem. Heiko has always been very, very careful not to do that. And as a result, we have very, very robust inventory reserve policies to make sure that we're being very proactive and we make sure that we have the right inventory. So I think that there's no question that there is a big internal focus on inventory. We want to slow the growth, but it is really key to our business.

Speaker Change #149: Thank you as shareholders for your continued trust.

Speaker Change #149: And as I mentioned before, I remain very optimistic about the future for HEICO.

If you don't have these solutions in the airplane catches on fire in certain situations.

Speaker Change #149: Going to be really bad.

Speaker Change #149: And now we'll open the floor to questions.

Speaker Change #149: And these solutions are time tested and work extremely well.

We're really happy for them to be in the Haikou portfolio and if you look at the military threats that are facing this country in the world today on.

Speaker Change #149: Thank you.

David Strauss: And frankly, you know, when you look at the 17% organic growth that we had in the aftermarket business, I mean that that was really outstanding and that can only be accomplished through increased inventories, but Carlos will get into the specifics for you. I don't know how much more I could add to that. I would say that the rate of increase in inventory spend has come down relative to the growth in the business.

Speaker Change #149: If you would like to ask a question, please signaled by pressing star 1 on your telephone keypad.

Speaker Change #149: The <unk> dropped solutions are really really critical super supercritical and we're working on a number of programs with various militaries around the world.

Speaker Change #149: If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Speaker Change #149: But <unk> got to deliver material to hotspots, where you don't control. The ground. This is the only way to do it and there is all sorts of neat technology going on now.

Speaker Change #149: 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.

Speaker Change #149: We'll take our first question from Robert Spingarn with Melius Research.

David Strauss: I mean, our sales are for the quarter or up 37% comparatively and are in our use our inventory spends not not ramping at that pace. So I'm happy with that. I think what I mentioned earlier in the year, David, we had a fair amount of orders outstanding on firm commitment inventory. That some of our subsidiaries had made two years ago just because of lead times. And so we made good on those.

Which is going to further drive this because now of course.

Speaker Change #149: Well, good morning and very nice quarter.

Speaker Change #149: Thank you very much Rob.

Speaker Change #149: Able to have these autonomous vehicles, you are able to drop all sorts of autonomous vehicles.

Speaker Change #149: Good morning to you.

Speaker Change #149: And there is going to be a huge demand for this.

Speaker Change #150: So we think that it's really a good space to be in great name. This company was the cable was the pioneer in this space.

Speaker Change #150: Thank you.

Speaker Change #150: A couple.

Speaker Change #150: I thought I'd start with the end markets.

David Strauss: We're not the type of company that just disrupts our vendor base or does bad things are vendor base to take advantage of a moment in time going to be partners with our vendors and make sure that we're good to them as they we expect them to be good. So the rate of those firm orders has come down. We're now sort of beyond that. And I do expect use of working capital, particular inventory to come down a little bit, but it will continue to grow a little bit as we as the business grows as Eric pointed out.

Speaker Change #150: And whether it's paratroopers or they also have the.

Speaker Change #150: The.

Speaker Change #150: The ejection seat.

Release mechanism. So if you eject from.

Speaker Change #150: Fighter aircraft and <unk> got our releases you at a certain point.

Youre able to do that and they are really very very well accepted by the customers around the world. So I think it's going to fit extremely well and the hydro portfolio.

Speaker Change #150: Eric, FSG's organic growth rate accelerated relative to the prior two quarters.

Speaker Change #150: And I was wondering, does this reflect the maturing integration that you just talked about between HEICO and WENCOR?

David Strauss: So, you know, I wasn't displeased as quarter with the working capital use. We expected it. And again, the rate of change in that inventory spend is down considerably compared to the first half of the year. And also, David, just to add one other little anecdote, of course, the purchase of the 737NG and triple seven display unit business was the purchase of a product line. And as a result, a good chunk of the inventory increase was due to that.

Speaker Change #150: Really appreciate it thank you.

Speaker Change #151: Or is this simply a function of the market, maybe demand strengthening in the end market and after market?

Speaker Change #151: Yeah, I think that's a great question Rob.

Speaker Change #151: Thanks Louis.

Speaker Change #152: We will take our next question from Ken Herbert with RBC capital markets.

Speaker Change #152: And I've spent a lot of time in business reviews and with our sales folks in particular over the last month going over a lot of the details.

Speaker Change #152: There's no question that the market remains strong, but I do think the reason why the incredible 17% growth rate was so outstanding is because of really two factors. One, we continue to win in the marketplace.

Speaker Change #152: Good morning, Ken Good morning, Hey, good good morning, Eric maybe.

Eric Mendelson: Eric I just wanted to start with you in the <unk> segment as you think about since you acquired when core you basically sort of been.

Eric Mendelson: And you know HEICO is an accumulation or a combination of individual businesses working as hard as they can, planning years in advance, developing these products, having them on the shelf and being able to hit the demand and get them sold when the market needs them.

Speaker Change #153: In <unk> your organic growth relative to sort of volume growth in the industry, if I assume sort of that.

Speaker Change #153: So I think that's number one, really everybody's sort of, if you will, all the unsung heroes who are working their rear ends off every day to make this happen.

David Strauss: So that really is an acquisition. It's a new business. It's all good inventory. But that obviously shows up as inventory. So you have to sort of take that into account. So when that's stripped out, the increase is much smaller.

Speaker Change #153: So that's probably the first reason.

Speaker Change #154: High single digit 10% ASM growth, we've seen over the last several quarters as you think about normalizing now that you have linked core and the opportunities from price share gain.

David Strauss: Great, thanks for the detailed answer. The other question I had on FSG margins, I know you talked about the year-over-year improvement but, you know, margins did drop, you know, gap margins did drop a little bit sequentially. What drove that 50 basis point drops sequentially, was that mix or something else? There's, I think, David, what we've told folks, there's nothing unusual about what's happening in the margins sequentially. I think what we've told folks is that we expect the segment to run between 22%, maybe it's eyes 23 as it has been in the last quarter.

Speaker Change #155: Give or trend in terms of PMA growth.

Speaker Change #156: To X volume growth the right way to continue to think about how you how you view your aftermarket opportunity within the segment.

Speaker Change #157: Sort of beyond fiscal 'twenty four.

Speaker Change #158: Well, we certainly hope so I don't know whether <unk> is that correct.

Speaker Change #159: The correct number I guess find out after the fact.

Speaker Change #160: But theres no question that we had significant growth in excess of the market.

Speaker Change #160: Whether you look at ASM or whatever other factor.

Speaker Change #161: Really growing well and yes that is a result of capturing market share.

Speaker Change #161: They are frankly is still a lot out there. So we're working really really hard to make that happen.

David Strauss: I don't think there's any unusual going on, it's ebbs and flows, you have a little shift in mix, is Eric pointed out some of the commercial business was down especially products. You know, the parts business is doing very well, that is margin helpful, the repair business is growing also, that's a little bit less accretive than the parts business. So, you're going to have puts and takes as we get the business to sort of settle into the vertical footprints of the segment.

Speaker Change #161: Frankly, if you had asked me this many years ago, whether we'd be at this number.

Speaker Change #161: Wouldn't have thought so.

Speaker Change #161: But our people continue to.

Speaker Change #161: Surprise us as a result of their hard effort.

Speaker Change #161: Hard work so.

Speaker Change #161: We hope so.

Speaker Change #161: But I guess time will tell.

Okay, and as I think about the share opportunity are you seeing it more from.

Speaker Change #162: New customers that airlines that maybe you haven't worked with before or is it sort of a greater capture of the wallet.

David Strauss: So, I wouldn't look, there's no one times or odd things going on in there. But, David, this is Eric also the way that I look at it from an operating perspective, is a year ago, our ebide margin, or what we call the flight support group cash margin in the third quarter was 23.4%. This year, despite the acquisition of Wincor, which was at sort of a lower cash margin, we've been able to increase the cash margin up 180 basis points to 25.2%.

Speaker Change #163: Additional customers in any any sort of differentiation you can provide around the along those lines.

Speaker Change #162: Yes.

Speaker Change #164: I mean, we pretty much deal we sell to I would think every single airline in the world certainly every major airline in the world. So it really is a story of additional capture.

Speaker Change #164: The second would definitely be due to the addition of WENCOR and the broadening of our product line, I think in speaking with our customers, we are viewed as a much more complete supplier.

Speaker Change #164: At those airlines that Thats really the big that is the big key for us.

Speaker Change #165: Okay and just finally can you can you quantify the.

David Strauss: So, I think those numbers are really outstanding, and as Carlos says, they just bounce around. I mean, we, that's why, you know, we say it's going to be within a certain range, but that's just standard noise. Okay, thanks very much.

Speaker Change #165: The Honeywell.

Speaker Change #166: Sort of the product client impact in the second quarter growth or I'm, sorry, the third quarter growth.

Speaker Change #166: I don't know Carlos I don't know if were providing so ken what I can what I can tell you is that.

Speaker Change #167: Roughly to $217 million, just a tick under $217 million of sales in the quarter were inorganic were acquired.

Peter Skibitski: Thank you. I'll take our next question from Pete Skabitzki with Olympic Global. Good morning guys.

Speaker Change #167: I mean HEICO today has transitioned tremendously over the last many decades.

Speaker Change #168: And I think our customers are very confident in purchasing additional products from us, whether it's parts, distribution, PMA repair.

Speaker Change #168: And so most of that was one corn a little bit of a legacy display business.

Speaker Change #168: And I think we're growing our market share.

Eric Mendelson: I guess to start with Eric, Eric, last quarter you guys talked about the supply chain, negatively impacting the repair business. And I think maybe it sounds like it did a bit this quarter as well, just because it sounds like parts kind of drove the business. So, can you talk through kind of, you know, do you see any light at the tunnel there, or maybe more specifically what's going on with the supply chain?

Okay perfect.

Speaker Change #168: I should add.

Ken Herbert: Ken that again, just as I mentioned, we are <unk> in the prior call. Prior question, we're very excited about the legacy business and.

Ken Herbert: So it's really, I think, yes, a strong market, but more, I think really focusing on the detail by our businesses and the broadening of the product line through WENCOR and the 737 and 777 display unit acquisition.

Ken Herbert: Okay, and then notwithstanding the strong growth, you know, there have been some airlines out there talking about over capacity that's been a bit of a theme here.

And we think that this has got tremendous potential gets us into a unique technology.

Eric Mendelson: Yeah, I would say we definitely have supply chain problems all over the business. Our vendors are challenged. There's a huge demand out there, and, you know, getting, we really got to be on top of your supply chain. You got to be on top of your vendors to make sure that you're prioritized and that they do is what they expect. We still have a large backlog of past due, and, you know, frankly, that's driven by certain vendors or many vendors inability to produce according to their commitment.

Ken Herbert: Are you seeing any evidence of that in the order patterns so far?

Ken Herbert: And we're really very very excited about it and happy to entrench ourselves even deeper with our customers. So I think that that was an outstanding product line acquisition, and frankly, something thats extremely transformative for HEICO, because it really puts us into that.

Ken Herbert: No, we really don't actually, and as a matter of fact, the number of airlines have sort of trimmed back their purchases.

Ken Herbert: They, if you will, in hindsight, I think over ordered a bit.

Ken Herbert: In 2023, you know, took more than they needed in 2023, so we do have anecdotal, you know, evidence of certain customers are cutting back this year, but that was really offset by strengths that other customers.

Ken Herbert: So, I think we, we continue to do very well.

Speaker Change #170: Got it.

Speaker Change #171: A key part of the airplane I mean, when you go next time you go into the cockpit.

Speaker Change #171: And that really, you know, that gets to the sort of the beauty of the Heiko model and that we've got all these individual business units.

Speaker Change #171: 737, or <unk>, just take a quick look in there and youll see our six big screens.

Speaker Change #171: And that is.

Really very high visibility of course for the pilots, but two within the airline so.

Eric Mendelson: So, that continues to be a struggle, and frankly, I don't see a tremendous amount of improvement in the aviation supply chain. The basically demand is just outstripping supply. A lot of people retired, some businesses shut down, some businesses lost there, if you will, special processes. You know, despite everyone knowing that this is a high-tech industry, there are a lot of, I would say less documented processes out there with suppliers. And.., and when they didn't need to produce for a period of time largely as a result of certain large OEMs ripping out all their orders very quickly, those folks retired and a lot of these special processes went away undocumented.

Speaker Change #171: Who have to control their own destiny.

Speaker Change #171: And if they're short in one area, they figure out how to make it up in another area, and this doesn't roll up to my desk after the fact. And instead they're doing this real time.

Speaker Change #172: And we have very very good customer response, thus far they are very happy that HEICO has entered this business and we will give them the.

Speaker Change #172: So, in summary, no, I mean, the market for us remains quite strong.

Speaker Change #172: Turn time and the quality that they expect so.

Speaker Change #172: Okay, and then just on the OE side, both UN Victor have some exposure to commercial OE.

Speaker Change #172: I'm very bullish on that.

Speaker Change #172: Great. Thanks, Erik I'll pass it back there.

Speaker Change #172: Are you seeing any slowdown and orders on the OE side because of the slower than expected production ramps, both at Airbus and Boeing, or do you continue to ship at the higher targeted rates that they're just taking inventory?

Thanks, Ken.

Our next question comes from Sheila <unk>.

With Jefferies.

Speaker Change #172: Yeah, we've definitely seen a reduction off of forecasts due to their build rates.

Thanks, So much guys and good morning.

Speaker Change #172: You know, there's no question Airbus is doing, I think, better than Boeing in that area.

Sheila: A few questions. If that's okay I'll start out with better and then go to Eric with the last one.

Victor: Victor maybe can you talk about just to double check that trade name impairment at 6 million as offset by the contingent liability this quarter something that out and.

Speaker Change #174: If you could give us an idea of cash margins.

Speaker Change #174: But, yes, definitely on the commercial OE production, things are softer than expected.

Eric Mendelson: And the industry has really struggled. And I think this is why if you look at the air framers, the engine manufacturers, they have really, really struggled as a result of their actions and basically slashing the supply chain the way they did. This is why HEICO, we fought like hell to keep our people to lay off as few as possible to figure out how people would go to reduce schedules because we knew that when the industry came back, we wanted to make sure that our most valuable asset was going to come back.

27% cash margins this quarter versus 28% last year.

Speaker Change #174: That of course has been offset by our strengths in the defense side.

Speaker Change #175: What happened there and.

Speaker Change #175: How do we think about pre extell, yet cash margin.

Speaker Change #175: Sure I'm going to let Carlos.

Carlos: And we expect that strength to continue into 2025, 2026, and after based on our conversations with our customers and what they want there.

Carlos: Answer on the impairment and the cash margins.

Carlos: And I will.

Speaker Change #176: <unk> comment.

Carlos: That.

Carlos: Yes.

Carlos: The <unk> business as a rule of thumb.

Speaker Change #177: Okay, and then here's a question.

Eric Mendelson: And I can tell you that there are companies out there who just went and cut 40%, 50% that their workforce is not on a temporary basis, but on a permanent basis. And as a result, when they go back and they try to hire these folks, they can't get them back because some are retired, some are pissed off, all sorts of reasons. So, you know, it's a long road back, and I think that's why the major manufacturers are having a big, big problem.

Speaker Change #177: Penalizes us by about 200 basis points.

Speaker Change #177: Margin somewhere in that zone, but I'll, let Carlos Carlos you don't mind, taking that sure sure sure sure good morning Sheila.

Speaker Change #177: Larry, I thought I would ask you this question, but anybody please jump in.

Speaker Change #177: So as I mentioned earlier the impairment.

Speaker Change #178: In the World of accounting you have to assess all of these are tangible assets all the time and.

Speaker Change #178: You continue to be inquisitive.

Carlos: When you establish purchase accounting on day, one for an acquisition you make estimates on what you think the revenues are going to do.

Carlos: You just did another deal.

Eric Mendelson: Okay, so you think just go forward, you expect the parts business to grow faster because that business you're less beholden to suppliers versus the repair business? It's hard to say which will grow faster. You know, we're pretty confident of our growth in both. You know, there's no question that when you ship individual parts, you are less impacted by a particular supplier's inability to supply because you can ship all the other parts that you have in stock.

Carlos: And when you have a trade name, it's a static intangible asset it doesn't amortize you have to look at it in or impairment model in this particular case.

Carlos: There is a there was a change in some of the end markets that affect one of our subs and we thought it was prudent to impair some of that trade name this quarter and Thats really what it was.

Carlos: How would you characterize the M&A pipeline as it stands today, maybe relative to the prior year or so?

Carlos: And is there any change in behavior from private equity folks who are out there with properties to sell?

Carlos: Yeah, Rob, this is Eric.

Carlos: Nothing spectacular we do the analysis every quarter, we look at it annually and it just so happened this quarter, we decided that.

Carlos: To bear that trade and they've made a lot of sense candidly makes my life easier because anytime you can get stuff.

Carlos: I'll take that just for a moment.

Eric Mendelson: Whereas when you're overhauling a component or, you know, a line replaceable unit, L-R-U, you can only ship the component if you have all the parts. So, if there's a bill of material of 200 parts, and you're missing one, you're not shipping that unit. So, that creates complications. And of course, when you're building a complex assembly, like an airplane or an engine, that you have that problem in space. So, but I think all of our businesses are performing quite well. It's just that there is plenty of past due backlog and sales actually can be even higher if we had those parts in from our suppliers.

Carlos: Off the books like that it's less things to Housekeep on a quarterly basis. So that's why we did it.

Eric Mendelson: Okay, that's all I appreciate that.

Carlos: Of course, a year ago, we were largely focused on one course, our largest deal in the history of the company over $2 billion, and that consumed a tremendous amount of capital as well as effort.

Got it so the net of each other.

Yes, the contingent earn out change and the impairment.

Carlos: But I can tell you that our pipeline today remains incredibly robust.

Carlos: We have a lot of projects in the work, our acquisitions, teams are non-stop running around the country.

Carlos: One was they are not changed is about $5 5 million in the atg positive and the negative was a 6 million earn out.

Carlos: I think we've worked very hard to differentiate ourselves as the buyer of choice, and we'll keep our fingers crossed that some of these will come to fruition.

Carlos: Roughly about a $500000 drag not significant at all.

Speaker Change #179: To the operating margin. Thank you.

Speaker Change #179: Thanks, Carlo and good morning.

Speaker Change #180: But there's no question that in conversations, and I don't want to call out individual businesses because they have their own respected sellers and reasons for having dealt with us.

Speaker Change #180: And I wanted to just ask about cash margins year over year I think they were down a 100 bips is that right.

Speaker Change #181: But I can tell you that on all of our recent acquisitions, I think Haiko's reputation has been key to getting all of those deals done and has made us a particularly attractive counterparty for our sellers and partners.

Speaker Change #181: And atg.

Speaker Change #181: Yes.

Speaker Change #182: And the pipeline remains very, very...

Victor Mendelson: And if I could just ask one to Victor Victor, you touched on it, but I was hoping to talk more about the medical and other area in ETG. And I know almost if we could bifurcate it because I know the medical portion had that, you know, COVID type surge. And now it's kind of normalizing. I imagine the next quarter or two that'll kind of normalize. But, you know, it is the broad economy negatively impacting the other portion of medical and other, or are you not, is that growing more strongly than medical?

Speaker Change #182: It down just a tick and I think that just because of the volume drop if you listen.

Speaker Change #183: Listen what we said earlier.

End markets the other electronic project.

Speaker Change #183: Rob, I know this is Larry, I know you asked me the question, but Eric preempted me.

Victor Mendelson: Yeah, I think what happened in medical is we had very strong orders in actually at 21, 22 at first and the things we make, it was some of it was stronger but a lot of it was weaker because if you remember they talked about the elected procedures and things like that that were deferred. And then there was a surge in 21 and 22. And even part of 23. And then I think what happened was the manufacturers concluded they had too much on the shelves and I think maybe some of the orders at our customers level for the end users did not materialize or they were slower.

Victor: <unk>, so non defense non space non aerospace there's other lines of business. We serve is roughly 30% give or take of the segment that business is down as Victor talked about earlier.

Victor: So what he told you is accurate.

Victor: The pipeline is very full and we are looking at actually too many acquisitions right now.

Victor: It's taking full time of a staff and I think it's very active.

Victor: I think contributing some of the drag on the margin as the SG&A spend that we have.

Victor: It's not really materially changed again as Eric talked earlier, we don't we don't really have knee jerk reactions at HEICO, if one of our businesses.

Victor: We're looking more for non-private equity deals but that's more in our interest.

Victor: Is having a challenge in any particular quarter or year.

Victor: Unless it's something that we believe will last a lifetime, we don't ask them to rightsize their business, we actually want to retain that talent and keep that overhead spend so that when the business turns where we're there to support our customers I believe that that contributed we talk about that as SG&A inefficiencies or lack of efficiencies in.

Victor: Although we do see some private equity, the problem is their price is very high and when we try to compete, normally we can't compete because of the pricing.

Victor: But we have enough non-private equity deals really to fill all that we need.

Victor: SG&A, that's really I think what the volume aspect and the impact of that has had on the segment and that once those sales come back, which we expect they will turn I think the order volume in the backlog supports that judgment.

Victor: That will go away and you should see some expansion in the margins.

Victor: So it's for us, it's a buyer's market right now.

Victor Mendelson: They've had to work through those, you know, that inventory and we're now seeing more of the customers coming back to us saying, oh, you know what, can you move things to the left, right? And I was opposed to moving them out to the right before as opposed to deferring them there. You know, can you pull these in? Can you ship sooner? We were going to defer this order, but now we're not going to right, we were having discussions like those.

Victor: Okay.

Victor: Eric.

Eric Mendelson: This isn't my area, but looking at the numbers it looks like to me actually that the cash margin EDG went up.

Speaker Change #184: Roughly 70 basis points from last year.

Speaker Change #185: It's improved.

Yeah, Okay, sorry, I forgot that one number yes and yes.

Speaker Change #185: And then it gets you Eric I promise, but Victor maybe.

Speaker Change #186: Got it.

Victor Mendelson: I don't know if it's a sign of the broader economy as well mixed into it. It's a good question and I wish I had great visibility on that, but I do know at the very least it seems like a classic case of overordering. And higher expectations for, for let's say the actual healthcare delivery from the healthcare delivery system out of the manufacturers.

Speaker Change #186: <unk> been asked this for 12 quarters straight what why do you think the defense market, that's dragging one even underperforming peers.

Speaker Change #186: We are starting to see double digit defense.

Speaker Change #187: We had double digit defense growth. This year. So I don't think we are.

Speaker Change #187: We're underperforming.

Speaker Change #187: I think we have excellent defense growth this year.

Speaker Change #189: And just quickly, Carlos, if I could ask you what the blended organic growth rate was in the quarter, thank you.

Victor Mendelson: Okay, so it sounds like you think that the de-stocking is about over the next quarter or so. It sounds like. Yeah, that's how it feels to me, you know, I would say where I've seen some signs some green shoots, so to speak, but it feels more kind of in this bottom or bottoming mode. And but we're seeing much higher quote activity and usually not always, but usually that's an indication that gets followed up by orders not long after. Okay, great, thanks guys.

Speaker Change #189: Okay got it so that 30% that's the drag.

And then lastly, the drag is from the.

Unknown Executive: Thank you, please.

Louis Ricotto: Thank you.

Speaker Change #190: Are you talking about for the company as a whole?

Speaker Change #190: Other markets for sure.

Speaker Change #190: Okay.

Speaker Change #190: Eric you laid out sort.

Eric Mendelson: What are the opportunities and whether it's revenue or cost synergies that have.

Eric Mendelson: Happen with one quarter, maybe if you could talk about you made a comment about.

Eric Mendelson: Commercials and sales operation in one quarter less P&A is now so.

Speaker Change #191: How do you think about where the PMA focus is when we think about HEICO and one quarter as a combined entity going 10 Airlines how does it allow you to upsell.

Speaker Change #191: Yeah, so when you factored all in, yeah.

Speaker Change #191: Yeah, so all in, it was a tick over 7% organic growth for the whole company.

Speaker Change #191: Okay, excellent.

Speaker Change #192: Thank you all.

Louis Ricotto: We'll take our next question from Louis Ricotto with Wolf Research. Hey, good morning, gentlemen. Good morning, Louis.

Speaker Change #192: Yes, so what we do we still go as individual businesses to the airlines, which is really typical of the HEICO model because even though we have for example, even pre one core within the HEICO parts group or the hydro repair group. There are many subsidiaries. So for example in the <unk>.

Speaker Change #192: Thanks, Rob.

Speaker Change #192: Thank you, Rob.

Speaker Change #192: Thank you.

Carlos Macau: Good morning. Maybe I can just start with, I guess a couple of things I noticed, impairment charge, not something we see from you guys. So just curious if you had any sort of additional information about that. And is that all related to the change in the contingency consideration as well? Just not sure if those kind of offset each other on the constatement or if one was in one spot, one was somewhere else.

Speaker Change #192: Our parts group there are six PMA companies and within the HEICO repair group. There are 11, a repair companies and those companies already went individually to the airlines.

Carlos Macau: So this is Carlos Louis, the the impairment charge and the contingent contingency reversal were both within the ETG segment. They were for two different subsidiaries. One was related to a business we have that is in the space industry where some of the markets have changed the revenue projections have come down. So this was a trade name impairment. It's just essentially math. The business is doing fine. It's just our expectations were a little higher on the on the business one.

Speaker Change #192: We'll take our next question from Art Souven with Steve.

Speaker Change #192: To make sure they were supporting their product and to find additional opportunities. So we still there may be an overall, if you will HEICO parts group contractor and contact.

Speaker Change #192: Hey, good morning and thank you for the questions.

Speaker Change #192: Good morning, Bert.

Speaker Change #192: And well as well as the HEICO repair group contact and contract. However, we've always sent the individual businesses in because they're the ones who are most knowledgeable about their product lines. So you want to go sit down with an engineer somebody in the shop, there is nobody better.

Carlos Macau: We bought it as far as putting a value to a trade name. And so we came to the conclusion this quarter that that we would impair that trade name a bit. The contingent earn out was due to a change in circumstances at one of our subsidiaries whereby the likelihood that they would meet or not objectives was low and it was kind of a cliff earn out so it was an all or nothing thing.

Speaker Change #192: And then somebody who is really into the details and understand everything there is to know about that particular product the materials. The metallurgy the dimensions the manufacturing process. How it is inspected how its installed how other people are using it and thats always been the strength of HEICO. Unfortunately, when core has.

Speaker Change #192: Done exactly the same thing.

Speaker Change #193: I think frankly they.

Speaker Change #194: They saw the HEICO model. This is pre acquisition they saw the HEICO motto and they thought that it worked quite well in imitation is the greatest form of flattery.

Carlos Macau: So that that occurred this quarter when it became apparent to us that they weren't going to earn that earn out. So that it's a coincidence they happen at the same time two different. They both went through selling, they went through general administrative expenses so they kind of offset each other. It was a bit of a non-event.

Speaker Change #193: They adopted it.

Speaker Change #194: No.

Speaker Change #195: There is no change to the linked quarter goes in the same way really understands their product.

Carlos Macau: All right, appreciate the color, Carlos. And then maybe just the, the, the capable deal, I know, you know, it's not hugely material, but anyway, just the size at least from a, you know, cash usage in the fourth quarter. Yeah, I don't think, I don't believe they're going to, I don't think it's going to be a big cash usage. I mean, will we, we borrowed for the majority of the acquisition. It's, you know, it should be a good deal for it.

Speaker Change #196: And they make sure on our parts and repair basis that they're in there at the detail level now having said that we do get executives.

Speaker Change #197: Other senior leadership from the airline, saying, Hey look you know you guys got 19000, PMA and you've got thousands of whatever the number is 7000 <unk> and I wanted to understand what we can do as a bigger package and so when they want to do that then we're able to aggregate it and show them.

Carlos Macau: It's a good margin business. It's, as Eric pointed out, it does nitchy stuff in aviation parts and submilitary. And so, you know, more to come. We'll see. It's not a, you know, it's an immaterial acquisition of Raiko and total. So we're not giving out too much of the financial details or anything like that. But it, it is not dilutive to the segment margins. If that's part of your question. Yeah. I can tell you I'm really excited about this business.

Speaker Change #197: The the greater overall package and what they can achieve and we've been very successful in presenting that but again when it comes in to tactically dealing with the airline we make sure that each individual business as well tied in to do that.

Speaker Change #198: Got it thank you so much.

Sheila: Thanks Sheila.

Carlos Macau: Excited about the technology, the people, the capability. You know, you look at what, you know, on the, the two businesses. I mean, one is the cockpit or aircraft egress. Now, these are really critical, very cost effective solutions. If you don't have these solutions in the airplane catches on fire in certain situations, it's going to be really bad. And these solutions are, time tested and work extremely well. So we're really happy for them to be in the Haiko portfolio.

Michael <unk>: We will take our next question from Michael <unk> with <unk> Securities.

Michael <unk>: Hey, good morning, guys. Thanks. Thanks.

Michael <unk>: Thanks for taking good morning, thanks for sticking around here.

Eric Mendelson: Maybe Eric just back to Ken's line of questioning and even what you've been talking about you're outgrowing the market youre getting the synergies.

Speaker Change #200: And cross and up sell opportunities from one core.

Speaker Change #201: I guess the sequential revenue growth two part question here and SSG sequential growth is ticked higher every quarter year over 5%.

Carlos Macau: And if you look at the military threats that are facing this country and the world today, the aerial drop solutions are really, really critical, super, super critical. And, you know, we're working on a number of programs with various militaries around the world. But you've got, if you've got a deliver material. So the hotspots where you don't control the ground, this is the only way to do it. And there's all sorts of neat technology going on now, which is going to further drive this because now, of course, we're able to have these autonomous vehicles.

Speaker Change #202: Think about SSG grow.

Speaker Change #203: If and when Boeing and Airbus can start getting these planes out the door would you expect to see some pressure on your volumes you talked about airlines and Youre picking up share, but I'm just I'm just curious if that's because they're just operating older equipment longer and once we start to see.

Speaker Change #204: Some of the global fleet go under higher levels of warranty is that is that going to create a natural headwind for you guys.

Speaker Change #205: I, certainly hope not I mean I.

Carlos Macau: You're able to drop all sorts of autonomous vehicles. And there's going to be a huge demand for this. So we think that it's really a good space to be in great name. This company, I mean, with the paper was the pioneer in this space. And, you know, whether it's paratroopers or they also have the, the, the ejection seat release mechanism. So if you eject from a fighter aircraft and you've got a release as you, you know, at a certain point, you're able to do that. And they're really very, very well accepted by the customers around the world. So I think it's going to fit extremely well in the Haiko portfolio.

Speaker Change #206: Understanding logically, what youre, saying, but I think thats also counter balanced by the fact that a lot of aircraft have been delivered in the last 10 years and those aircraft are significantly more expensive to maintain and the old ones and they are all getting order by one year every year, so yes to the.

Speaker Change #206: There is a greater retirements that would reduce sales. However, that's being mitigated by this huge group of aircraft that had been recently delivered data in the newer generations and the fleet sizes are significantly larger than the older ones.

Speaker Change #206: So I think that's going to mitigate it.

Speaker Change #206: And.

Speaker Change #206: And you look at also the additional.

Eric Mendelson: Really appreciate her. Thank you. Thanks, Lewis.

Speaker Change #206: Products that we offer now.

Speaker Change #206: And in particular with the <unk> acquisition and the display units and all that stuff, we had significantly higher content on these newer aircrafts. So I think that that's going to mitigate it.

Ken Herbert: We'll take our next question from Ken Harvard with RBC Capital Markets. Good morning, Ken. Yeah, good morning. Hey, good morning, Eric. Maybe Eric, I just wanted to start with you and the FSG segment. As you think about, since you acquired Wencore, you've, you've basically sort of been, been 2Xing your organic growth relative to, you know, sort of volume growth in the industry. If I assume sort of the, you know, high single digit 10% ASK growth we've seen over the last several quarters.

Speaker Change #206: And then also anecdotally I can tell you that there are a number of airlines who are in fact operating as you suggested order aircraft, but I can tell you and Don.

Speaker Change #206: Maybe Eric, just to start with you on the FSG side, I think mentioned sort of accelerating growth, organic growth of 15% extremely impressive. Last quarter, you had talked about the aftermarket replacement part side being, I believe 21% growth and you called out about a quarter of that being price with the discount relative to OEM being close to the widest you've ever seen it.

Speaker Change #206: So I'm curious, how did that change in the fiscal third quarter was pricing increases in element of that growth or does it continue to be more of a volume story?

Ken Herbert: As you think about normalizing now that you have Wencore and the opportunities from price, share gain, you know, sectoral trend in terms of KMA growth, is sort of 2X volume growth, the right way to continue to think about how you, how you view your aftermarket opportunity within the segment, you know, sort of sort of beyond fiscal 24. Well, we certainly hope so. I don't know whether 2X is the correct number. You know, I guess find out after the fact, but there's no question that we have significant growth in excess of the market, whether you look at ASMs or whatever other factor.

Don: Don't exactly quote me on this because if I'm getting it slightly mixed up I don't want.

Don: Yeah, hi, Bert.

Don: But directionally you understand what I'm, saying for example on the <unk> hundred 20, I think there's not a fifth heavy maintenance checks. So they are continuing a number of airlines that are continuing to operate this aircraft at the end of the fifth.

Don: So the short answer, it's more of a volume story.

Don: I think last, so this quarter, it was 17% for the parts business and last quarter, I think it was, it was 21 as you mentioned.

Don: Maintenance check where they hadn't been planning on doing it that is not creating any revenue for us.

Don: So I think that there is a certain amount of older aircraft that continue to fly which arent generating.

Don: Most of that is volume.

Don: Maintenance dollars and that stuff is going to be pulled out. So I think you look at all of this together and I am I.

Don: Some of it is price, but I would say it's definitely mostly, mostly on the volume side.

Speaker Change #208: We've been very firm about passing along our price increases to our customers. And we've got to make sure as our costs have gone up and you know whether that's labor or special processes, material purchase product, whatever it is, we've got to make sure that we get that passed along.

Speaker Change #208: I am very bullish I mean look we are not the team members at HEICO leadership My family, we're not invested in HEICO for anyone cycle, we're investing because we think that this is a very very excellent space to be.

Ken Herbert: We're really growing well, and yes, that is a result of capturing market share. And there frankly is still a lot out there. So we're working really, really hard to make that happen. Frankly, if you'd asked me this many years ago, whether we'd be at this number, I wouldn't have thought so. But our people continue to surprise us as a result of their hard work. So we hope so.

Speaker Change #208: So definitely the vast majority of that is.., of Value, and then much lesser extent would be the price.

Speaker Change #208: With both commercial travel business and leisure as well as defense for decades, and there will inevitably be little bumps here and there, but the truth is not even the experts in the industry no.

Speaker Change #208: Where this is going to come out and historically, we've always sailed right through those periods. So I can tell you from an operating perspective that doesn't change our direction of travel or our focus on developing new products or making sure. We have inventory on the shelf because whenever we've been try whenever.

Ken Herbert: You know, but I guess time will tell. OK, and as I think about the share opportunity, are you seeing it more from, you know, new customers that, you know, airlines that maybe you haven't worked with before, or is it sort of a greater capture of the wallet at an additional customers in any sort of differentiation you can provide around those lines? Yeah, I mean, we pretty much deal we sell to, you know, I would think every single airline in the world, certainly every major airline in the world.

Speaker Change #208: Eric, as you think forward for FFSA, I guess just for the aftermarket, replaceable parts business, you know, I know it was brought up earlier on the airline side, you're seeing trimming capacity, lower yields, it doesn't sound like that's had any impact yet.

Speaker Change #208: Do you think there's an opportunity to gain meaningful share if we go into a little bit of a slowdown just because it opens up, or I guess it makes the portfolio more attractive to customers that may be bought PMA parts in sort of a lower percentage or do you think that becomes sort of the element where, you know, pricing maybe balances with volume, just curious how you're thinking about maybe the next several quarters if things do slow down.

Speaker Change #208: Historically, we've tried to be if you will to Q2 smart you Miss it.

Speaker Change #208: And we HEICO strength is because we had the parts on the shelf where no one else did.

Speaker Change #208: Yeah, again, we haven't seen signs of any slowdown to date as a matter of fact, quite the contrary, sort of surprisingly to the contrary.

Speaker Change #209: Got it that's.

Speaker Change #210: That's helpful. Thanks, and then just just one last quick one shifting gears back to Cape well and specifically the Ariel <unk>.

Speaker Change #210: And with regard to normally when there is a slowdown, obviously volumes drop, and that is when we pick up additional market share. That's when customers realize that they've got to take advantage of our additional cost savings parts and repairs, and we pick up market share at that point.

Ken Herbert: So it really is a story of additional capture at those airlines. That's really the big, that is the big key for us. OK, and just finally, can you can you quantify the Honeywell, sort of the product line impact in in the second quarter growth, or I'm sorry, the third quarter growth. I don't at Carlos, I don't know if we're providing. So Ken, what I could, what I could tell you is that, you know, roughly two, 217 million just to take under turn 17 million of sales in the quarter were in organic were acquired.

Speaker Change #211: That company in their product lines are they a competitor with <unk> airborne systems or are they complementary or just how to think about their positioning in the marketplace.

Speaker Change #211: And of course, when the economy recovers, we recover even stronger than most because we've picked up market share.

Speaker Change #211: The customers are very, I think, very excited about the HIKO product line.

Speaker Change #211: Yes, I think they are complementary.

Speaker Change #211: I think they are complementary.

I think that a lot of the release mechanisms are sold to trans time and.

Speaker Change #213: They want to have competition, their demanding competition, and HIKO provides, you know, very fair competition in that regard.

Speaker Change #213: They are very complementary in the market.

Speaker Change #213: So I think that we're going to do very well.

I'll jump back here guys. Thanks for us they're not taking the question.

Mike: Thanks, Mike.

Speaker Change #215: We'll take our next question from Gautam Khanna with TD Cohen.

Speaker Change #215: And for short, pick up market share, get additional parts and repairs designed in when that, if that occurs.

Ken Herbert: And so, you know, most of that was one core and a little bit of the legacy display business. OK, but I should I should add, can that again, just as I mentioned about Cape well in the prior call prior question, we're very excited about the legacy business and we think that this has got tremendous potential. It gets us into a unique technology and we're really very, very excited about it and happy to entrench ourselves even deeper with our customers.

Mike: Yeah.

Gautam Khanna: Hey, good morning, guys.

Speaker Change #217: Good morning.

Speaker Change #217: Very helpful.

Gautam Khanna: I had a quick question first for Eric just in terms of the aftermarket replacement parts did you notice any.

Speaker Change #218: Discernible differences between types of products.

Speaker Change #219: In terms of relative growth rate like maybe engine versus airframe or.

Speaker Change #219: And just one last question for Victor.

Speaker Change #219: Steph sold through the distribution channel versus direct I don't know if there is any way to parse it but.

Speaker Change #220: Or is it all kind of the same.

Eric Mendelson: Yes, I would say I would say, it's all the same.

Ken Herbert: So I think that that was an outstanding product line acquisition and frankly something that's extremely transformative for high code because it really puts us into the guts, you know, a key part of the airplane. I mean, when you go next time you go in a cockpit on a 737 or NG, just take a quick look in there and you'll see our six big screens and that is really, you know, very high visibility, of course, for the pilots, but two within the airline.

Eric Mendelson: I'm not aware of any major trends in one particular area versus the other I mean, there are always puts and takes in the quarter based on 1 million factors frankly, we don't even understand.

Eric Mendelson: But no I would say that the strength was very very broad base.

Eric Mendelson: Okay.

Eric Mendelson: And in terms of the <unk> core.

Speaker Change #221: Integration and I know you generally don't.

Speaker Change #222: Don't integrate things.

Ken Herbert: So when we have very, very good customer response thus far, they're very happy that Michael was injured this business and will give them the turn time and the quality that they expect. So I'm very bullish on that. Thanks, Eric.

Speaker Change #222: Fully but here.

Speaker Change #222: Have some common product development opportunity.

And the like I was just wondering like where are we with respect to <unk>.

Speaker Change #222: Level of integration relative to where you expect to be kind of a year or two years from now where.

Ken Herbert: I'll pass it back there.

Speaker Change #223: Probably 50% of the way there.

Sheila Kahyaoglu: Thanks, Ken.

Speaker Change #223: I was just curious.

Speaker Change #223: From a.

Speaker Change #223: Great.

Speaker Change #225: What have you.

Sheila Kahyaoglu: Our next question comes from Sheila Kahyaoglu with Jeffries. Thanks so much guys and good morning. A few questions if that's okay after. I'll start out with Victor and then go to Eric for the last one. Victor, maybe can you talk about just a double check, the trade in name impairment, that six million is off that by the contingent liability, this quarter so they net out. And if you could give us an idea of cash margins, 27% cash margins, this quarter versus 28% last year, kind of what happened there and how do we think about pre-excelia cash margins?

Speaker Change #225: I think we've done a great job, but I think that there is more and I think.

Speaker Change #225: Want to tip. Our competitors' offers two additional stuff that we can do but I think that there is still plenty of gas in the tank there.

Speaker Change #225: Victor, if we look at the ETG business over the last several quarters, you know, sort of bounced around from positive to negative on the organic side, sort of averaged about zero percent, I think that business is meant to be sort of longer term load amid single digit organic.

Speaker Change #226: And as I've said before <unk> is going to be the combination of HEICO inquiry is going to be the gift that keeps on giving.

Speaker Change #226: I guess sort of a two part question.

Speaker Change #226: And I think that there's a lot of additional areas where.

Speaker Change #226: The businesses can benefit from one another the customers can benefit.

Speaker Change #226: Frankly, we've got promotion opportunities.

Speaker Change #226: One, I think earlier in the year, you were expecting this more significant ramp in the back half.

Speaker Change #226: I'm just curious what changed that outlook.

Sheila Kahyaoglu: Sure. I'm going to let Carlos answer on the impairment, the cash margins, and I will just comment that the excelia business is a rule of thumb penalizes us by about 200 basis points of margin and somewhere in that and so on, but I'll let Carlos, if Carlos, you don't mind taking that. Sure, sure, sure. Good morning, Sheila. So as I mentioned earlier, in the world of accounting, you have to assess all these tangible assets all the time.

Speaker Change #226: Within the company there is a lot of.

Speaker Change #226: As we continue to acquire businesses, we need more.

Speaker Change #226: We need additional team members to step up and take more responsibility.

Speaker Change #226: And I think that when we look at the HEICO and the <unk> team members.

Speaker Change #226: Really the sky's the limit for them for.

Speaker Change #226: And then two, as you go into FY 25, is there a potential that grows sort of exceeds your longer term growth target just as a function of recovering?

Speaker Change #226: For folks who want to work hard to want to take on more responsibility, we have a lot of whether its acquisitions or whether it's organic growth I mean, my gosh, 17% organic growth in the quarter I mean, that's at a breakneck pace.

Speaker Change #226: Yeah, thank you, Bert.

Speaker Change #226: The good questions.

Sheila Kahyaoglu: And when you establish purchase accounting on day one for an acquisition, you make estimates on what you think the revenues are going to do. And when you have a trade name, it's a static intangible asset. It doesn't amortize you have to look at it in a impairment model. In this particular case, there was a change in some of the end markets that affect one of our subs and we thought it was prudent to impair some of that trade name this quarter.

Speaker Change #226: And that's creating all sorts of promotional opportunities for people the acquisitions are creating promotional opportunities for people there.

Speaker Change #226: There is additional stuff that we can do on in particular on the repair side.

Speaker Change #226: Sharing even more repairs frankly across our businesses.

Speaker Change #226: There is a lot of stuff that can be done, but when youre growing at 17%.

Speaker Change #226: It's hard just hard just to keep up before you before you do all that stuff. So where are we I would say were.

Sheila Kahyaoglu: And that's really what it was. Nothing spectacular. We do the analysis every quarter. We look at it annually and it's just so happened this quarter. We decided that, you know, to impair that trade name made a lot of sense. Canally, it makes my life easier because anytime you can get stuff off the books like that, it's less things to house keep on a quarterly basis. So that's why we did it. Got it.

Speaker Change #226: Definitely.

Speaker Change #226: For sure in the first half.

Speaker Change #226: Where are we we may even be at the first quarter I think there is.

Speaker Change #226: A lot more but it's going to happen over time.

Speaker Change #226: It's not going to be something right away and it.

Speaker Change #226: It's going to work out very well too.

Speaker Change #226: Peoples personal career opportunities as they take on more because I can tell you. We've got so many acquisitions in the hopper and one of the greatest constraints that we have is not having enough.

Sheila Kahyaoglu: So they net out each other. They do. Yeah, the contingent earn out change and the impairment. One was they're not changes about five and a half million in the ETG positive and the negative was the six million earn out. So it's roughly about a $500,000 drag, not significant at all, to the operating margin. Thank you.

Speaker Change #226: Internal people, who we can promote to take on more responsibility at acquisitions and sometimes we have to pass on acquisitions, because we don't have those internal people. So.

Sheila Kahyaoglu: Thank Carlos and good morning. I wanted to just ask about cash margins year over year. I think they were down a hundred bits. Is that right? Any teaching? Yeah, it down just to tick and I think that's just because of the volume drop. If you listen what we said earlier, you know, the end markets, the other electronic project product, so non-defense, non-space, non-Aerospace. There's other lines of business we serve as roughly 30% give or take of the segment.

Speaker Change #226: I don't think where we are and so far in the back half of the year has really been a surprise to us. I think we tried to hint in the second quarter call that we thought, you know, for example, margins were higher in that period that we would look for an average over the course of the year. So it's not really too far out of line, maybe slightly.

Speaker Change #226: We're doing the budgets for fiscal 25. But when I look at our backlogs and I look at our order rate, it feels to me as though we would have a stronger growth rate in fiscal 25.

Speaker Change #226: I think theres going to be a very big opportunity.

Speaker Change #226: Again, it's a little premature for me to say that with certainty because our companies do their budgets now and submit them in early October.

Speaker Change #226: So I'm waiting on those, but right now that's how it feels to me.

Speaker Change #226: Thank you, Eric and Victor just one for you.

Speaker Change #226: Yes.

Speaker Change #227: Thanks very much.

Speaker Change #227: In the past you've called out space.

Speaker Change #228: <unk> has been something that lagged how is that.

Speaker Change #228: Thank you.

Speaker Change #229: Trending within ETE.

Speaker Change #229: BTG.

Speaker Change #229: Yes, I think overall Carlos correct me, if I have it wrong, but.

This year this quarter.

Speaker Change #230: It's roughly flattish for us.

Speaker Change #230: I think it's an important business Carlos I have that right.

Speaker Change #230: Take our next question from Larry Solow with CUJS Securities.

Sheila Kahyaoglu: That business is down as Victor talked about earlier. Let's, I think, contributing some of the drag on the margin is the S-GNA spend that we have is not really materially changed. Again, as Eric talked earlier, we don't really have knee jerk reactions at Haiko if one of our businesses is having a challenge in any particular quarter or year, unless it's something that we believe last a lifetime, we don't ask them to write size their business.

I'm, sorry, what was that the organic growth.

Speaker Change #230: Good morning, Larry.

Speaker Change #230: Yes.

Speaker Change #230: The space.

Speaker Change #231: Yes, that's flattish for the quarter.

Speaker Change #232: I mean, it's up but it's for it's for the year. It's flattish it is up a little bit for the quarter.

Speaker Change #232: Thanks so much.

Speaker Change #233: Thanks, guys I appreciate it Youre welcome.

Okay.

Speaker Change #233: We will take our final question from Tony Bancroft with Gabelli funds.

Speaker Change #233: Good good morning, everybody.

Sheila Kahyaoglu: We actually want to retain that talent and keep that overhead spend so that when the business turns, we're going to support our customers. I believe that that contributed. We talk about that as S-GNA inefficiencies or lack of efficiencies in S-GNA. That's really I think what the volume aspect and the impact of that is out on the segment. And that, you know, once the sales come back, which we expect they will turn, I think the order volume and the backlog supports that judgment, that will go away and you should see some expansion in the margin.

Speaker Change #233: Good.

Tony Bancroft: Good morning, gentlemen, and congratulations on the great quarter, and I thought great.

Got it great job with you keep well acquisition grateful there'll be a high jump chump using keep wells.

Speaker Change #235: Alex I'm, not getting dragged across Alabama fields Airborne school.

Tony Bancroft: But.

Tony Bancroft: Regarding the <unk>.

Tony Bancroft: Please acquisition from Honeywell.

Tony Bancroft: It looks like a great business as well.

Speaker Change #236: A lot of opportunity for integration there.

Sheila Kahyaoglu: Sheila, this is Eric, although this isn't my area, but looking at the numbers, it looks like to me actually that the cash margin of ETG went up roughly 70 basis points from last year. So it gets improved. Yeah. Okay, sorry, I must have had the wrong number. Yeah. I'm going to get to Eric, I promise, but Victor, maybe I know you've been asked this for 12 quarters straight. What, why do you think the defense markets are dragging when even underperforming peers are starting to see double digit defense.

Tony Bancroft: <unk> into those platforms are there any other.

Programs on the display side like that out there I know there is obviously other oes.

Speaker Change #237: Do it obviously and then smaller companies like ISC just wanted to get your thoughts on that market.

Speaker Change #237: Yes, we think that Tony This is Eric we think the display unit is a really good market to be in.

Speaker Change #237: Thanks for taking the questions and congrats on really impressive growth and you, Victor, sounds like some good bookings, growth for your side of business.

Eric Mendelson: We already do some displays I can tell you that these displays in particular would be extremely difficult if not impossible to do.

Eric Mendelson: It looks like we'll be having a couple of quarters of coming.

Sheila Kahyaoglu: So, we've had double digit defense growth this year, so I don't think we're, we're underperforming. I think we have excellent defense growth this year. Okay, got it, so that 30% that's the drag. And then last question, your drag is from the, the, the other markets for sure. Okay, Eric, you laid out seven sort of opportunities and whether it's revenue or cost energies that have happened with one core, maybe if you could talk about, you made a comment about commercials and sales cooperation and when, when core lists all PMAs.

Eric Mendelson: I guess a question to Eric for you.

Unless it was the way that we did it through the purchase of the Honeywell.

Eric Mendelson: Just a couple of, thank you for some of that detail on the WENCORE doll.

Eric Mendelson: IP.

Eric Mendelson: To be able to overhaul. These so I think that thats very important and we can take.

Eric Mendelson: Their IP and their product and then we're able to combine that with the HEICO high quality and turn time that our customers have come to expect.

Eric Mendelson: So it sounds like you are certainly getting, it looks like some revenue synergies and stuff combining a lot of common services and whatnot.

Eric Mendelson: <unk> delivered a terrific terrific product so.

Eric Mendelson: <unk>.

Eric Mendelson: Very excited about this and it really fits extremely nicely within our avionics package at HEICO.

Eric Mendelson: I'm just curious, I don't know if you could break this out, but has your organic growth at WENCORE kept up or even exceeded the overall growth of the FSG over the last few quarters?

Speaker Change #238: Thank you great job.

Eric Mendelson: Thank you.

Sheila Kahyaoglu: Now, so how do you think about where the PMA focus is when we think about high go and when core has a combined entity going to an airline, how does it allow you to upsell? Yeah, so what, what we do, we still go as individual businesses to the airlines, which is really typical of the high co model because even though we have, for example, even pre one core within the high co parts group or the high group.

Speaker Change #239: I would say it's very consistent with FSG.

Speaker Change #239: We're glad that you are safe with our Cape well releases.

Eric Mendelson: Yeah.

Speaker Change #240: [laughter] product good safe product.

Speaker Change #240: I mean, we look at the various WENCORE businesses and their organic growth is very consistent.

Speaker Change #240: Thank you.

Speaker Change #240: I mean, some are, you know, there can be little anomalies here or there, but in general, they're doing very well and consistent with the legacy HIKO businesses.

Speaker Change #240: And at this time I will turn the conference back to Lawrence Mendelsohn for any additional or closing remarks.

Sheila Kahyaoglu: There are many subsidiaries. So, for example, in the high co parts group, there are six PMA companies and within the high co repair group, there are 11 repair companies and those companies already went individually to the airlines to make sure they were supporting their product and to find additional opportunities. So, we still, you know, there may be an overall, if you will, high co parts group contract and contact and well as, as well as a high co repair group contact and contract.

Speaker Change #240: Has the overall, obviously the PMA parts offering has increased to 1 plus 1, certainly equals 2, but has it increased even more and have you increased your overall offering apart?

Speaker Change #240: Sure.

Speaker Change #240: Does that help growth in the last few quarters?

Speaker Change #240: I think we're having a technical challenge this is Eric so I'd like to thank everybody for participating.

Speaker Change #240: Yes, it has.

Lawrence Mendelsohn: On our third quarter earnings call. We look forward to speaking with you at our on our fourth quarter call towards the end of December if anybody has any questions. Please don't hesitate to reach out to Carlos Victor or me.

Speaker Change #241: Dad, and we're happy to speak with you and answer whatever additional questions. You have we thank you very much for your interest in HEICO. We hope you appreciate the great results that we've put forth today and look forward to a terrific fourth quarter, so stay well and enjoy the rest of your summer. Thank you very much.

Sheila Kahyaoglu: However, we've always sent the individual businesses in because they're the ones who are most knowledgeable about their product lines. So, you want to go sit down with an engineer or somebody in the shop, there's nobody better than somebody who's really into the details and understands everything there is to know about that particular product, the materials, the metallurgy, the dimensions, the manufacturing process, how it's inspected, how it's installed, how other people are using it.

Speaker Change #241: This concludes the call.

Speaker Change #243: Thank you and thank you for your participation you may now disconnect.

Speaker Change #241: Okay.

Speaker Change #241: [music].

Sheila Kahyaoglu: And that's always been the strength of high co. And fortunately, one core has done exactly the same thing. I think frankly, they saw the high co model, this is pre acquisition, they saw the high co model and they thought that it worked quite well and imitation is the greatest form of flattery and they adopted it. So, there's no change. So, when core goes in, the same way really understands their product and they make sure on a parts and repair basis that they're in there at the detail level.

Speaker Change #241: Okay.

Speaker Change #241: Okay.

Speaker Change #241: Okay.

Speaker Change #241: Then the overall offering has grown, and we've really seen the advantages of that and frankly the customer enthusiasm around it.

Speaker Change #241: Yes.

Sheila Kahyaoglu: Now, having said that, we do get executives and, you know, other senior leadership from the airline saying, hey, look, you guys got 19,000 PMAs and you got thousands of whatever the number is. And I want to understand what we can do as a bigger package. And so, when they want to do that, then we're able to aggregate it and show them the greater overall package and what they can achieve and we've been very successful in presenting that. But again, when it comes in to tactically dealing with the airline, we make sure that each individual business is well tied in to do that.

Speaker Change #241: [music].

Speaker Change #241: Gotcha.

Speaker Change #241: Okay.

Speaker Change #241: [music].

Speaker Change #241: Just a question.

Speaker Change #241: Yes.

Speaker Change #241: Well, it sounds like the Cape Ball position nice little tuck in.

Eric Mendelson: Thank you so much. Thank you, Sheila.

Speaker Change #241: Any more color on that?

Victor Mendelson: I'll take our next question from Michael Charmoli with the Trillist Securities.

[music].

Michael Ciarmoli: Good morning, guys. Thanks for taking the morning. Thanks for sticking around here. Maybe, Eric, just back to Ken's line of questioning, and even what you've been talking about, you're outgrown in the market, you're getting the synergies and crossing up sell opportunities from when core. And I guess the sequential revenue growth to part question here. In FSG, sequential growth is kicked higher every quarter, you're over 5%. How do we think about FSG growth?

Speaker Change #241: It looks like I guess it's going to be in specialty products. So a little more nichi, higher margin stuff, maybe a little bit more, you know, some choppy sales, bigger quarters sometimes, right?

Speaker Change #241: Is that kind of how to look at that?

Michael Ciarmoli: If and when Boeing and Airbus can start getting these planes out the door, would you expect to see some pressure on your volumes? And I mean, you talked about airlines and you're picking up share, but I'm just curious if that's because they're just operating older equipment longer. And once we start to see some of the global fleet go under higher levels of warranty, is that going to create a natural headwind for you guys?

Okay.

Speaker Change #241: [music].

Speaker Change #241: Yes.

Speaker Change #241: [music].

Michael Ciarmoli: I certainly hope not. I mean, I understand logically what you're saying, but I think that's also counterbalanced by the fact that a lot of aircraft have been delivered in the last 10 years. And those aircraft are significantly more expensive to maintain than the old ones. And they are all getting older by one year every year. So yes, to the extent there is greater retirements that would reduce sales, however, that's being mitigated by this huge group of aircraft that have been recently delivered and the newer generations and the fleet sizes are significantly larger than the older ones.

Speaker Change #241: Yes.

Speaker Change #241: Okay.

Speaker Change #241: [music].

Michael Ciarmoli: So I think that's going to mitigate it. And you look at also the additional products that we offer now in particular with the one core acquisition and the display units and all that stuff. We have significantly higher content on these newer aircraft. So I think that's going to mitigate it. And then also anecdotally, I can tell you that there are a number of airlines who are, in fact, operating as you suggested, older aircraft, but I can tell you, and don't exactly quote me on this because if I'm getting it slightly mixed up, I don't want, but directionally, you'll understand what I'm saying.

Speaker Change #241: Okay.

Speaker Change #241: [music].

Michael Ciarmoli: For example, on the A320, I think there's not a fifth heavy maintenance check. So there are continuing a number of airlines are continuing to operate this aircraft to the end of the fifth maintenance check where they hadn't been planning on doing it. That is not creating any revenue for us. So I think that there's a certain amount of older aircraft that continue to fly which aren't generating maintenance dollars. And that stuff is going to be pulled out.

Right.

Speaker Change #241: [music].

Michael Ciarmoli: So I think you look at all this together and I'm very bullish. I mean, look, we are not, you know, the team members of HIKO, the leadership, my family, we're not invested in HIKO for any one cycle. Well, we're invested because we think that this is a very, very excellent space to be with both commercial travel, business and leisure, as well as defense for decades. And there will inevitably be little bumps here and there.

Speaker Change #241: Yes.

Speaker Change #241: It's a terrific business, and they basically have two main product lines.

Speaker Change #241: [music].

Speaker Change #241: One is the commercial and military, I'm sorry, when you are the cockpit egress business.

Speaker Change #241: Okay.

Michael Ciarmoli: But the truth is not even the experts in the industry know where this is going to come out. And historically, we've always sailed right through those periods. So I can tell you from an operating perspective that doesn't change our direction to travel or our focus on developing new products or making sure we have inventory on the shelf. Because whenever we've been trying, you know, whenever historically we've tried to be, if you will, too cute and too smart, you miss it. And we, we, HIKO's strengths is because we had the parts on the shelf when no one else did. David, that's a health layer of things.

Speaker Change #241: Okay.

Speaker Change #241: Yes.

Speaker Change #241: Okay.

Speaker Change #241: You need to have basically a way out of a cockpit, in case the cockpit door is blocked or also cargo aircraft or tankers need egress from the aircraft in the event of a problem, and they have a very sophisticated well-timed tested or, you know, appreciated product, which is in a number of commercial and military aircraft, which is really key, and really the only way to get people out of the aircraft in the event they need to escape, and the standard slides are either inactive or don't exist on certain types of aircraft.

Speaker Change #241: Yeah.

Speaker Change #241: [music].

Speaker Change #241: So that's part of the.., and then the other part of their business is the aerial descent piece where whether you're parachuting out of an airplane or if they're dropping tanks or various equipment out of C-130s or C-17s or whatever it is, you've got fairly sophisticated parachutes that attach to it and there are various attachment mechanisms and aerial drop mechanisms, which are really critical.

Michael Ciarmoli: And then just one last quick one, shifting gears back to Capewell and specifically the aerial descent. Is that company in their product lines, are they a competitor with trans times airborne systems, or are they complimentary, or just how to think about their positioning in a marketplace? Yeah, I think they're complimentary. I think they're complimentary. I think that a lot of the release mechanisms are sold to trans times, and they're very complimentary in the market.

Speaker Change #241: So we think that this is a great business, it's really appreciated by its customers and frankly it's the pioneer in this business and since the 1940s was the original company that designed the device which permit paratroopers to jump out of airplanes and to detach once they hit the ground and not get dragged as a result of the parachute and so that's that's a very strong business, it's a very nichey business and that's why we thought it fit very well in our specialty products group and of course our specialty products has a lot of connection to the overall, you know, to the other parts of light support, so I think it's a very good fit.

Gautam Khanna: I'll jump back here guys. Thanks for staying on to take the question. Thanks Mike.

Speaker Change #241: Yes.

Speaker Change #241: Yeah, we're very excited about it.

Speaker Change #241: [music].

Speaker Change #241: Excellent.

Speaker Change #241: Sure.

Speaker Change #241: [music].

Gautam Khanna: We'll take our next question from Gautam Khanna with TD Cohen. Hey, good morning guys. Good morning, Gautam. I had a quick question first for Eric just in terms of the aftermarket replacement parts. Did you notice any discernible differences between types of products, in terms of relative growth rate, like maybe engine versus airframe or stuff sold through the distribution channel versus direct? I don't know if there was any way to parse it, but was it all kind of the same?

Speaker Change #241: I guess just last question that has for Carlos, just on the margin, you mentioned respectfully on the FSC and ETG up to 25 and 27% on the CAS operating margin, perhaps not so much in the next quarter too, but you know, what do you see those margins over the next three to five years?

Speaker Change #241: Yes.

Speaker Change #241: I mean, can they continue to to tick up on the cash side?

Speaker Change #241: Sure.

Speaker Change #241: [music].

Speaker Change #241: You look out.

Speaker Change #241: Yes.

Speaker Change #241: Yes.

Speaker Change #241: [music].

Gautam Khanna: Yeah, I would say it's all the same. I'm not aware of any major trends in one particular area versus the other. I mean, there are always puts and takes in the quarter based on a million factors, frankly, we don't even understand. But no, I would say that the strength was very, very broad-based. It was okay. And in terms of the when-core integration, and I know you generally don't integrate things fully, but here, you know, you do have some common product development opportunity and the like.

Speaker Change #241: Yes.

Speaker Change #241: Sure.

Speaker Change #241: [music].

Gautam Khanna: I was just wondering, where are we with respect to level of integration relative to where you expect to be kind of a year or two years from now? Are we 50% of the way there? Are we? I'm just curious from a- Yeah, I think what have you? No, I think we've done a great job. But I think that there's more. And I think, you know, I don't want to tip our competitors off as to additional stuff that we can do.

Speaker Change #241: Yes.

Speaker Change #241: Okay.

Speaker Change #241: Yeah.

Gautam Khanna: But I think that there's still plenty of gas in the tank there. And as I've said before, when-core is going to be you know, the combination of hike on when-core is going to be the gift that keeps on giving. And I think that there's a lot of additional areas where, you know, the businesses can benefit from one another, the customers can benefit. You know, frankly, we've got promotion opportunities within the company.

Speaker Change #241: So the answer to your question is as we continue to grow the volume of the business, we expect it will eng out incremental margin gains consistent with our history.

Speaker Change #241: You know, as the base of the business grows, you know, the amount of overhead needed to support is relative to that growth.

Speaker Change #241: It's a little, it's a little lower.

Gautam Khanna: There's a lot of, as we continue to acquire businesses, we need more, you know, we need additional team members to step up and take more responsibility. And I think that when we look at the hike on the one-core team members, really the sky's the limit for them. For folks who want to work hard, who want to take on more responsibility, we have a lot of, you know, whether it's acquisitions or whether it's organic growth.

Speaker Change #241: So I expect we'll get that if you look back, you know, quoted this before, if you look back a decade and look at the margin gains, you know, over that, that's kind of what I would expect going forward.

Speaker Change #241: Once we settle into our footprint here in the FSC and ETG, and I do think, you know, you're talking about an EBITDA margin.

Speaker Change #241: So it's pretty elevated.

Gautam Khanna: I mean, my gosh, 17% organic growth in the quarter. I mean, that's like a breakneck pace. And that's creating all sorts of promotional opportunities for people. The acquisitions are creating promotional opportunities for people. There's additional stuff that we can do on in particular on the repair side, with sharing even more repairs, frankly, across our businesses. There's a lot of stuff that can be done, but when you're growing at 17%, it's hard just to keep up before you do all that stuff.

Speaker Change #241: We were happy with it this quarter.

Speaker Change #241: And I think that as we move forward, that should continue to stabilize any account improvements.

Speaker Change #241: Great.

Speaker Change #241: Excellent.

Speaker Change #241: Thanks, everybody.

Speaker Change #241: Welcome.

Speaker Change #241: Thanks.

Speaker Change #241: We'll take our next question from Peter Armit with Fared.

Gautam Khanna: So where are we? I would say we're definitely for sure in the first half. Where are we? We may even be at the first quarter. I think there's a lot more, but it's going to happen over time. It's not going to be something right away, and it's going to work out very well to people's personal career opportunities as they take on more. Because I can tell you we've got so many acquisitions in the hopper, and one of the greatest constraints that we have is not having enough internal people who we can promote to take on more responsibility at acquisitions. And sometimes we have to pass on acquisitions because we don't have those internal people. So I think there's going to be a very big opportunity. Thank you, Eric.

Speaker Change #241: Thanks.

Gautam Khanna: And Victor, just one for you.

Speaker Change #241: Good morning, Larry, Eric Victor.

Speaker Change #241: Gross.

Speaker Change #241: Nice, nice, nice results.

Speaker Change #241: Victor, could you talk a little bit about, you know, you talked about some of the booking rates and sort of the competence and sorry, seeing ETG growth thinking about next year, but just, you know, maybe some of the end markets that we're seeing is defense.

Gautam Khanna: In the past, you've called out space at times as being something that lagged. How is that business trending within ETG? I think overall Carlos, correct me if I have it wrong, but this year or this quarter, it's roughly flatish for us. I think it's a good and important business. But Carlos, I have that right. I'm sorry. Was that the organic growth? Yeah, or the space? Yeah, it's flatish for the quarter. I mean, it's up, but it's for the year. It's flatish. It's up a little bit for the quarter. Perfect. Thanks guys. Appreciate it. You're welcome.

Speaker Change #241: I assume it's almost 50% of your segment.

Speaker Change #241: Is that growing, you know, mid single digits and it's just as other areas that are seeing some softness or maybe just a little more color.

Speaker Change #241: Yeah, so Peter, the defense part of the business and commercial aviation really have been extremely strong, experiencing double-digit growth.

Speaker Change #241: And again, that's where some of our longer-term bookings really come on the defense side and I'm seeing some of those fill out beyond 25 as well as some of the quote activity in the order indications again to 25 and beyond.

Tony Bancroft: We'll take our final question from Tony Bancroft with the Belly Fund.

Speaker Change #241: So right now I feel like the fence is a good leader for us and commercial aviation has really been phenomenal.

Eric Mendelson: Good morning, gentlemen. Congratulations on the great quarter. And I thought a great job with the K-P well acquisition. I'm grateful to be a five-jump champ using K-P well products and not getting dragged across the Alabama field airborne school. But the regarding the displays acquisition from Honeywell, obviously, that looks like a great business as well. A lot of opportunity for integration there into those platforms. Are there any other programs on the display side like that out there? I know there's obviously other OE's that do it obviously. And then smaller companies like ISSC just want to get your thoughts on that market.

Eric Mendelson: Yeah, what we think, Tony, this is Eric. We think the display unit is a really good market to be in. We already do some displays. I can tell you that these displays in particular would be extremely difficult if not impossible to do. Unless it was the way that we did it through the purchase of the Honeywell IP to be able to to overhaul these. So I think that that's very important and we can take their IP and their product and then we're able to combine that with the high quality and turn time that our customers have come to expect and deliver a terrific product. So I'm very, very excited about this and it really fits extremely nicely within our avionics package at high quality.

Eric Mendelson: Thank you, great job. Thank you, and we're glad that you're safe with Dr. Capewell releases. Good safe product, I like it. Thank you.

Eric Mendelson: And at this time I will turn the conference back to Lawrence Mendelson for any additional or closing remarks. So I think we're having a technical challenge. This is Eric.

Speaker Change #241: So when I take that together, I look at the other markets which are down consistent with I think what other people are seeing in these kinds of markets and it looks like those order rates are bottoming out, it appears to us that are customers that kind of used up the excess inventory and the orders are coming in.

Eric Mendelson: So I'd like to thank everybody for participating on our third quarter earnings call. We look forward to speaking with you on our fourth quarter call towards the end of December. If anybody has any questions, please don't hesitate to reach out to Carlos or Victor or me or our dad, and we're happy to speak with you and answer whatever additional questions you have. We thank you very much for your interest in HICO.

Speaker Change #241: And you know, if you add a sort of six-month lead time on that, it gets us into, you know, into fiscal 25 and that's why I say I feel like there will be a very nice tailwind from that next year.

Speaker Change #241: Of course, I can't be certain that but that's just how it feels right now.

Speaker Change #241: Any other impact?

Speaker Change #241: This is Carlos.

Speaker Change #241: I just want to point out, you know, you're not wrong on what you said about 50% of the segment, but right now we're tracking around 40%.

Eric Mendelson: We hope you appreciate the great results that we put forth today. And look forward to a terrific fourth quarter. So stay well and enjoy the rest of your summer. Thank you very much. This concludes the call. Thank you, and thank you for your participation. You may now disconnect. [inaudible][inaudible] David Strauss, David Strauss, David Strauss, David Strauss,[inaudible]

Speaker Change #241: So we still have, I've mentioned in the past, you know, once the mix sort of settles down, I do expect our defense to become closer to the 50% number over time.

Speaker Change #241: Right now we're still a little behind on, you know, on the total revenues in the segment being only around 40% for defense this quarter.

Speaker Change #241: Okay, that's helpful.

Speaker Change #241: And then just Carlos may just stick with you on the leverage.

Speaker Change #241: It's come down exactly where you guys kind of thought it would do 2.1 turns.

Speaker Change #241: You know, how are you thinking about, you know, just given that the M&A pipeline is full, but your ability to kind of, you know, want to still deliver what's any updated thoughts on kind of where you're taking the leverage to.

Speaker Change #241: Well, I think, you know, look, by nature, we're in a positive company and we set out an aggressive time table to pay down some of the debt that we had and we've done that.

Speaker Change #241: I think the opportunities are a bound as long as we can keep our leverage.

Speaker Change #241: Candidly under three.

Speaker Change #241: There's opportunities for us and I think that, you know, the goal for us is to find very profitable companies that they don't disrupt that leverage.

Speaker Change #241: You know, the ones that have real high EBITDA, which have been, which has been our history, right?

Speaker Change #241: I mean, we like high margin businesses. So the more acquisitions we do with the higher margin, the less impact it has on that leverage and that's where I'm steering things.

Speaker Change #241: When we talk internally about about these deals, I'll leave it there.

Speaker Change #241: Thanks, guys.

Speaker Change #241: Yep.

Speaker Change #241: We'll take our next question from David Strauss with Bartley's.

Speaker Change #241: Morning, David.

Speaker Change #241: Morning.

Speaker Change #241: Thanks for taking the question.

Speaker Change #241: One to ask about working capital, you know, last year we had a fairly big inventory build this year, fairly big inventory build.

Speaker Change #241: How are you thinking about potentially, you know, floor growth or working capital or maybe working capital just coming down on absolute basis from here.

Speaker Change #241: Hey David, this is Eric, I'll start out with sort of the big picture and then Carlos to get into the specifics on the financial.

Speaker Change #241: You know, Heiko has always been focused on customer service.

Speaker Change #241: And making sure that we capture all of the incremental sales that we can capture.

Speaker Change #241: And if you look at coming out of COVID, Heiko recovered much quicker than most.

Speaker Change #241: And as a result of not cutting our people, not trimming our inventories too much in bottom line, we were able to support the market when others weren't and that's really been a huge Heiko advantage.

Speaker Change #241: So I can tell you from an operational perspective, Victor and I are very, very focused on all of our business units, reviewing a working capital, understanding specifically, you know, how the inventory or the receivables have increased obviously receivables that that's up due to the huge increase in sales.

Speaker Change #241: But with regard to inventory, our businesses have been really outstanding in terms of having the correct inventory on the shelf.

Speaker Change #241: There are a lot of companies where their inventory blows up and they've got the wrong stuff on the shelf and they can't sell it and then people find out after the fact that it's a problem.

Speaker Change #241: Heiko has always been very, very careful not to do that.

Speaker Change #241: And as a result, we have very, very robust inventory reserve policies to make sure that we're being very proactive and we make sure that we have the right inventory.

Speaker Change #241: So I think that there's no question that there is a big internal focus on inventory.

Speaker Change #241: We want to slow the growth, but it is really key to our business.

Speaker Change #241: And frankly, you know, when you look at the 17% organic growth that we had in the aftermarket business, I mean that that was really outstanding and that can only be accomplished through increased inventories, but Carlos will get into the specifics for you.

Speaker Change #241: I don't know how much more I could add to that.

Speaker Change #241: I would say that the rate of increase in inventory spend has come down relative to the growth in the business.

Speaker Change #241: I mean, our sales are for the quarter or up 37% comparatively and are in our use.

Speaker Change #241: Our inventory spends not not ramping at that pace.

Speaker Change #241: So I'm happy with that.

Speaker Change #241: I think what I mentioned earlier in the year, David, we had a fair amount of orders outstanding on firm commitment inventory.

Speaker Change #241: That some of our subsidiaries had made two years ago just because of lead times. And so we made good on those.

Speaker Change #241: We're not the type of company that just disrupts our vendor base or does bad things are vendor base to take advantage of a moment in time going to be partners with our vendors and make sure that we're good to them as they we expect them to be good at.

Speaker Change #241: So the rate of those firm orders has come down.

Speaker Change #241: We're now sort of beyond that.

Speaker Change #241: And I do expect use of working capital, particularly inventory to come down a little bit.

Speaker Change #241: But it will continue to grow a little bit as we as the business grows as Eric pointed out.

Speaker Change #241: So, you know, I wasn't displeased this quarter with the working capital use.

Speaker Change #241: We expected it.

Speaker Change #241: And again, the rate of change in that inventory spend is down considerably compared to the first half of the year.

Speaker Change #241: And also, David, just to add one other little anecdote.

Speaker Change #241: Of course, the purchase of the 737NG and triple seven display unit business was the purchase of a product line. And as a result, a good chunk of the inventory increase was due to that.

Speaker Change #241: So that really is an acquisition.

Speaker Change #241: It's a new business.

Speaker Change #241: It's all good inventory.

Speaker Change #241: But that obviously shows up as inventory.

Speaker Change #241: So you have to sort of take that into account.

Speaker Change #241: So when that's stripped out, the increase is much smaller.

Speaker Change #241: Great, thanks for the detailed answer.

Speaker Change #241: The other question I had on FSG margins, I know you talked about the year-over-year improvement, but you know, margins did drop, you know, gap margins did drop a little bit sequentially.

Speaker Change #241: What drove that 50-basis going drop sequentially?

Speaker Change #241: Was that mix or something else?

Speaker Change #241: There's, I think, David, what we've told folks, there's nothing unusual about what's happening in the margins sequentially.

Speaker Change #241: I think what we've told folks is that we expect the segment to run between 22 percent, maybe it's high as 23 as it has been in the last quarter.

Speaker Change #241: I don't think there's any unusual going on, it's ebbs and flows, you have a little shift in mix, as Eric pointed out, some of the commercial business was down especially products.

Speaker Change #241: You know, the parts business is doing very well, that is margin helpful, the repair business is growing also, that's a little bit less accretive than the parts business, so you're going to have puts and takes as we get the business to sort of settle into the vertical footprints of the segments, so I wouldn't look, there's no one times or odd things going on in there.

Speaker Change #241: But David, is there also the way that I look at it from an operating perspective, is a year ago, our EBITA margin, or what we call the flight support group, cash margin, in the third quarter, was 23.4 percent. This year, despite the acquisition of Winkor, which was at sort of a lower cash margin, we've been able to increase the cash margin up 180 basis points to 25.2 percent.

Speaker Change #241: So I think those numbers are really outstanding, and as Carlos says, they just bounce around, I mean, that's why we say it's going to be within a certain range, but that's just standard noise.

Speaker Change #241: Okay, thanks very much.

Speaker Change #241: Thank you.

Speaker Change #241: I'll take our next question from Pete Skabitzki with Olympic Global.

Speaker Change #241: Good morning guys.

Speaker Change #241: I guess to start with Eric, Eric, last quarter you guys talked about the supply chain negatively impacting the repair business, and I think maybe it sounds like it did this quarter as well. It sounds like parts kind of drove the business.

Speaker Change #241: So can you talk through kind of, do you see any light at the tunnel there, or maybe more specifically what's going on with the supply chain?

Speaker Change #241: Yeah, I would say, we definitely have supply chain problems all over the business.

Speaker Change #241: It, our vendors are challenged.

Speaker Change #241: There's a huge demand out there.

Speaker Change #241: And getting, we really got to be on top of your supply chain.

Speaker Change #241: You got to be on top of your vendors to make sure that you're prioritized and that they do is what they expect.

Speaker Change #241: We still have a large backlog of past due, and frankly, that's driven by certain vendors or many vendors in ability to produce, according to their commitment.

Speaker Change #241: So that continues to be a struggle.

Speaker Change #241: Frankly, I don't see a tremendous amount of improvement in the aviation supply chain.

Speaker Change #241: Basically, demand is just outstripping supply.

Speaker Change #241: A lot of people retired.

Speaker Change #241: Some businesses shut down, some businesses lost there, if you will, special processes.

Speaker Change #241: Despite everyone knowing that this is a high-tech industry, there are a lot of, I would say less documented processes out there with suppliers.

Speaker Change #241: And.., and when they didn't need to produce for a period of time largely as a result of certain large OEMs ripping out all their orders very quickly, those folks retired and a lot of these special processes went away undocumented.

Speaker Change #241: And the industry has really struggled. And I think this is why, if you look at the air framers, the engine manufacturers, they have really, really struggled as a result of their actions and basically slashing the supply chain the way they did.

Speaker Change #241: This is why HEICO, we fought like hell to keep our people to lay off as few as possible to figure out how people would go to reduce schedules, because we knew that when the industry came back, we wanted to make sure that our most valuable asset was going to come back.

Speaker Change #241: And I can tell you that there are companies out there who just went and cut 40%, 50% that their workforce is not on a temporary basis but on a permanent basis.

Speaker Change #241: And as a result when they go back and they try to hire these folks, they can't get them back because some are retired, some are pissed off, all sorts of reasons.

Speaker Change #241: So, you know, it's a long road back and I think that's why the major manufacturers are having a big, big problem.

Speaker Change #241: Okay, so you think, just go forward, you expect a parts business to grow faster because that business you're less beholden to suppliers versus the repair business?

Speaker Change #241: It's hard to say which will grow faster.

Speaker Change #241: You know, we're pretty confident of our growth in both.

Speaker Change #241: You know, there's no question that when you ship individual parts, you are less impacted by a particular supplier's inability to supply because you can ship all the other parts that you have in stock.

Speaker Change #241: Whereas when you're overhauling a component or a line replaceable unit, LRU, you can only ship the component if you have all the parts. So if there's a bill of material of 200 parts and you're missing one, you're not shipping that unit.

Speaker Change #241: So that creates complications.

Speaker Change #241: And of course when you're building a complex assembly like an airplane or an engine that you have that problem in space.

Speaker Change #241: So, but I think all of our businesses are, you know, are performing quite well. It's just that there is plenty of past due backlog and sales actually can be even higher if we had those parts in from our suppliers.

Speaker Change #241: Okay, that's all I appreciate that.

Speaker Change #241: And if I can just ask one to Victor Victor, you touched on it, but I was hoping to talk more about the medical and other area in ETG.

Speaker Change #241: And I know almost if we could bifurcate it because I know the medical portion had that, you know, COVID type surge.

Speaker Change #241: And now it's kind of normalizing.

Speaker Change #241: I imagine the next quarter or two, that'll kind of normalize.

Speaker Change #241: But, you know, it is the broad economy negatively impacting the other portion of medical and other, or are you not, is that growing more strongly than medical?

Speaker Change #241: Yeah, I think what happened in medical is we had very strong orders in actually at 21, 22 at first and the things we make it was it was some of it was stronger but a lot of it was weaker because if you remember that they talked about the elected procedures and things like that that that were deferred.

Speaker Change #241: And then there was a surge in 21 and 22.

Speaker Change #241: And even part of 23 and then I think what happened was the manufacturers concluded they had too much on the shelves and I think maybe some of the orders at the you know at our customers level right from the end users did not materialize or they were slower.

Speaker Change #241: They've had to work through those you know that inventory and we're now seeing more of the customers coming back to us saying oh you know what can you move things to the left right you know it was opposed to moving them out to the right before as opposed to deferring them there you know can you pull these in can you ship sooner we were going to defer this order but now we're not going to right we were having discussions like those.

Speaker Change #241: I don't know if it's a sign of the broader economy as well mixed into it it's it's a good question and I wish I had great visibility on that but I do know at the very least it seems like a classic case of overordering and higher expectations for for let's say the actual healthcare delivery from the healthcare delivery system out of the manufacturers.

Speaker Change #241: Okay so it sounds like you think that the destocking is about over in the next quarter or so it sounds like.

Speaker Change #241: Yeah that's how it feels to me you know I would say where I've seen some signs some green shoots so to speak but it feels more kind of in this bottom or bottoming mode and but we're seeing much higher quote activity and usually not always but usually that's an indication it gets followed up by orders not one.

Speaker Change #241: Okay great thanks guys.

Speaker Change #241: Thank you.

Speaker Change #241: We'll take our next question from Louis Reffato with Wolf Research.

Speaker Change #241: Hey good morning gentlemen.

Speaker Change #241: Good morning Louis.

Speaker Change #241: Maybe I can just start with I guess a couple things I noticed impairment charge not something we see from you guys so just was curious if you had any sort of additional information about that and is that at all related to the change in the contingency consideration as well just not sure of those kind of offset each other on the constatement or one was in one spot one with somewhere else.

Speaker Change #241: So this is Carlos Lewis the the impairment charge and the contingent contingency reversal were both within the ETG segment.

Speaker Change #241: They were for two different subsidiaries. One was related to a business we have that is in the space industry where some of the markets have changed the revenue projections have come down so this was a trade name impairment.

Speaker Change #241: It's just essentially math the businesses doing fine.

Speaker Change #241: It's just our expectations were a little higher on the on the business one we bought it as far as putting a value to a trade name.

Speaker Change #241: And so we came to the conclusion this quarter that that we would impair that trade name a bit the contingent earn out was due to change in circumstances at one of our subsidiaries whereby the likelihood that they would meet to earn out objectives was low.

Speaker Change #241: And it was kind of a cliff earn out so it was an all or nothing thing so that that occurred this quarter when it became apparent to us that they weren't going to earn that or not so that it's a coincidence they happen at the same time two different sub.

Speaker Change #241: They both went through selling, they went through general administrative expenses so they kind of offset each other.

Speaker Change #241: It was a bit of a non-event.

Speaker Change #241: All right, appreciate the color, Carlos.

Speaker Change #241: And then maybe just the, the, the capable deal.

Speaker Change #241: I know, you know, it's not hugely material, but anyway, just the size at least from a, you know, cash usage in the fourth quarter.

Speaker Change #241: Yeah, I don't think, I don't believe they're going to, I don't think it's going to be a big cash usage. I mean, will, we, we borrowed for the majority of the acquisition.

Speaker Change #241: It's, you know, it should be a good deal for its.

Speaker Change #241: It's a good margin business.

Speaker Change #241: It, as Eric pointed out, it does nitchy stuff in aviation parts and submilitary.

Speaker Change #241: And so, you know, more to come.

Speaker Change #241: We'll see.

Speaker Change #241: It's not a, you know, it's an immaterial acquisition of Reiko and total.

Speaker Change #241: So we're not giving out too much of the financial details or anything like that.

Speaker Change #241: But it, it is not dilutive to the segment margins.

Speaker Change #241: If that's part of your question.

Speaker Change #241: Yeah.

Speaker Change #241: I, I can tell you I'm really excited about this business.

Speaker Change #241: Excited about the technology, the people, the capability.

Speaker Change #241: You know, you look at what, you know, on the, the two businesses, I mean, one is the cockpit or aircraft egress.

Speaker Change #241: Now, these are really critical, very cost effective solutions.

Speaker Change #241: If you don't have these solutions in the airplane catches on fire in certain situations, it's going to be really bad.

Speaker Change #241: And these solutions are time tested and work extremely well.

Speaker Change #241: So we're really happy for them to be in the Haiko portfolio.

Speaker Change #241: And if you look at the military threats that are facing this country and the world today, the aerial drop solutions are really, really critical, super, super critical.

Speaker Change #241: And, you know, we're working on a number of programs with various militaries around the world.

Speaker Change #241: But you've got, if you've got a deliver material at a hotspots where you don't control the ground, this is the only way to do it.

Speaker Change #241: And there's all sorts of neat technology going on now, which is going to further drive this.

Speaker Change #241: Because now, of course, you're able to have these autonomous vehicles.

Speaker Change #241: You're able to drop all sorts of autonomous vehicles. And there's going to be a huge demand for this.

Speaker Change #241: So we think that it's really a good space to be in great name.

Speaker Change #241: This company, I mean, with the paper, it was the pioneer in this space.

Speaker Change #241: And, you know, whether it's paratroopers, or they also have the ejection seat release mechanism.

Speaker Change #241: So if you've checked from a fighter aircraft and you've got a release as you, you know, at a certain point, you're able to do that.

Speaker Change #241: And they're really very, very well accepted by the customers around the world.

Speaker Change #241: So I think it's going to fit extremely well in the Haiko portfolio.

Speaker Change #241: Really appreciate her.

Speaker Change #241: Thank you.

Speaker Change #241: Thanks, Lewis.

Speaker Change #241: We'll take our next question from Ken Harvard with RBC Capital Markets.

Speaker Change #241: Good morning, Ken.

Speaker Change #241: Yeah, good morning.

Speaker Change #241: Hey, good morning, Eric.

Speaker Change #241: Maybe Eric, I just wanted to start with you and the FSG segment.

Speaker Change #241: As you think about, since you acquired Wencore, you've basically sort of been, been 2Xing your organic growth relative to, you know, sort of volume growth in the industry.

Speaker Change #241: If I assume sort of the, you know, high single digit 10% ASK growth we've seen over the last several quarters.

Speaker Change #241: As you think about normalizing now that you have Wencore and the opportunities from price, share gain, you know, sectoral trend in terms of KMA growth.

Speaker Change #241: It's sort of 2X volume growth, the right way to continue to think about how you view your aftermarket opportunity within the segment, you know, sort of sort of beyond fiscal 24.

Speaker Change #241: Well, we certainly hope so.

Speaker Change #241: I don't know whether 2X is the correct number.

Speaker Change #241: I guess find out after the fact.

Speaker Change #241: But there's no question that we have significant growth in excess of the market.

Speaker Change #241: Whether you look at ASM or whatever other factor, we're really growing well. And yes, that is a result of capturing market share.

Speaker Change #241: And there frankly is still a lot out there.

Speaker Change #241: So we're working really, really hard to make that happen. Frankly, if you'd asked me this many years ago, whether we'd be at this number, I wouldn't have thought so.

Speaker Change #241: But our people continue to surprise us as a result of their hard work.

Speaker Change #241: So we hope so.

Speaker Change #241: You know, but I guess time will tell.

Speaker Change #241: OK, and as I think about the share opportunity, are you seeing it more from new customers that airlines that maybe you haven't worked with before?

Speaker Change #241: Or is it sort of a greater capture of the wallet at an additional customers in any sort of differentiation you can provide around those lines?

Speaker Change #241: Yeah, I mean, we pretty much deal we sell to, you know, I would think every single airline in the world, certainly every major airline in the world.

Speaker Change #241: So it really is a story of additional capture at those airlines.

Speaker Change #241: That's really the big, that is the big key for us.

Speaker Change #241: OK, and just finally, can you can you quantify the honey well, sort of the product line impact in in the second quarter growth, or I'm sorry, the third quarter growth?

Speaker Change #241: I don't at Carlos.

Speaker Change #241: I don't know if we're providing so what can what I could, what I could tell you is that, you know, roughly to 217 million just to take on a turn of 17 million of sales in the quarter were in organic were acquired.

Speaker Change #241: And so, you know, most of that was one core and a little bit of the legacy display business.

Speaker Change #241: OK, but I should I should add can that again, just as I mentioned about Cape well in the prior call prior question, we're very excited about the legacy business and we think that this has got tremendous potential gets us into a unique technology.

Speaker Change #241: And we're really very, very excited about it and happy to entrench ourselves even deeper with our customers.

Speaker Change #241: So I think that that was an outstanding product line acquisition and frankly something that's extremely transformative for high code because it really puts us into the guts, you know, a key part of the airplane.

Speaker Change #241: I mean, when you go next time you go in a cockpit on a 737 or NG, just take a quick look in there and you'll see our six big screens.

Speaker Change #241: And that is really, you know, very high visibility, of course for the pilots, but two within the airline.

Speaker Change #241: So, and we have very, very good customer response thus far.

Speaker Change #241: They're very happy that Michael was injured this business and will give them the turn time and the quality that they expect.

Speaker Change #241: I'm very bullish on that.

Speaker Change #241: Thanks, Eric.

Speaker Change #241: I'll pass it back there.

Speaker Change #241: Thanks, Ken.

Speaker Change #241: Our next question comes from Sheila Kahyaoglu, with Jeffries.

Speaker Change #241: Thanks so much guys, and good morning.

Speaker Change #241: A few questions if that's okay.

Speaker Change #241: I'll start out with Victor, and then go to Eric for the last one.

Speaker Change #241: Victor, maybe can you talk about just a double check, the trading name impairment, that six million is off that by the contingent liability, this quarter, so they net out.

Speaker Change #241: And if you could give us an idea of cash margins, 27% cash margins, this quarter versus 28% last year, kind of what happened there, and how do we think about pre-excelia cash margins?

Speaker Change #241: Sure.

Speaker Change #241: I'm going to let Carlos answer on the impairment, the cash margins, and I will just comment that the excelia business is a rule of thumb, penalizes us by about 200 basis points of margin, and somewhere in that and so on.

Speaker Change #241: But I'll let Carlos, if Carlos you don't mind taking that.

Speaker Change #241: Sure, sure, sure.

Speaker Change #241: Good morning, Sheila.

Speaker Change #241: So as I mentioned earlier, the impairment, you know, in the world of accounting, you have to assess all these detangible assets all the time.

Speaker Change #241: And when you establish purchase accounting on day one for an acquisition, you make estimates on what you think the revenues are going to do, and when you have a trade name, it's a static intangible asset.

Speaker Change #241: It doesn't amortize.

Speaker Change #241: You have to look at it in a impairment model.

Speaker Change #241: In this particular case, there was a change in some of the end markets that affect one of our subs, and we thought it was prudent to impair some of that trade name this quarter, and that's really what it was.

Speaker Change #241: Nothing spectacular.

Speaker Change #241: We do the analysis every quarter.

Speaker Change #241: We look at it annually, and it just so happened this quarter, we decided that, you know, to impair that trade name made a lot of sense.

Speaker Change #241: Canally, it makes my life easier because anytime you can get stuff off the books like that, it's less things to house keep on a quarterly basis.

Speaker Change #241: So that's why we did it.

Speaker Change #241: Got it.

Speaker Change #241: So they net out each other. They do.

Speaker Change #241: Yeah, the contingent earn out change and the impairment.

Speaker Change #241: One was, they were not changes about five and a half million in the ETG positive, and the negative was the six million earn out.

Speaker Change #241: So it's roughly about a $500,000 drag, not significant at all to the operating margin.

Speaker Change #241: Thank you.

Speaker Change #241: Thank you, Carlos, and good morning.

Speaker Change #241: I wanted to just ask about cash margins year over year.

Speaker Change #241: I think they were down a hundred tips.

Speaker Change #241: Is that right?

Speaker Change #241: Any TG?

Speaker Change #241: Yeah, it down just to tick, and I think that's just because of the volume drop.

Speaker Change #241: If you listen what we said earlier, you know, the end markets, the other electronic project product, so non-defense, non-space, non-error space, those other lines of business we serve as roughly 30% give or take of the segment.

Speaker Change #241: That business is down, as Victor talked about earlier. Let's, I think, contributing some of the drag on the margin is the S-GNA spend that we have is not really materially changed.

Speaker Change #241: Again, as Eric talked earlier, we don't really have knee jerk reactions at HICO if one of our businesses is having a challenge in any particular quarter or year unless it's something that we believe last a lifetime, we don't ask them to write size their business.

Speaker Change #241: We actually want to retain that talent and keep that overhead spend so that one of the business turns where we're going to support our customers.

Speaker Change #241: I believe that that contributed.

Speaker Change #241: We talk about that as S-GNA inefficiencies or lack of efficiencies in S-GNA.

Speaker Change #241: That's really, I think, what the volume aspect and the impact of that is had on the segment.

Speaker Change #241: And that, once the sales come back, which we expect they will turn, I think, the order volume and the backlog supports that judgment, that will go away and you should see some expansion in the margin.

Speaker Change #241: But Sheila, this is Eric, although this isn't my area, but looking at the numbers it looks like to me actually that the cash margin of ETG went up roughly 70 basis points from last year.

Speaker Change #241: So it gets improved.

Speaker Change #241: Yeah.

Speaker Change #241: Okay, sorry, I must have had the wrong number.

Speaker Change #241: Yeah, yeah.

Speaker Change #241: I'm going to get to Eric, I promise, but Victor, maybe I know you've been asked this for 12 quarters straight.

Speaker Change #241: What why do you think the defense markets are dragging when even under performing peers are starting to see double digit defense.

Speaker Change #241: So we've had double digit defense growth this year.

Speaker Change #241: So I don't think we're we're under performing.

Speaker Change #241: I think we have excellent defense growth this year.

Speaker Change #241: Okay, got it.

Speaker Change #241: So that 30% that's the drag.

Speaker Change #241: And then last question, your drag is from the the other markets for sure.

Speaker Change #241: Okay, Eric, you laid out seven sort of opportunities and whether it's revenue or cost energies that have happened with one core.

Speaker Change #241: Maybe if you could talk about you made a comment about commercials and sales cooperation and when one core list all PMAs now.

Speaker Change #241: So how do you think about where the PMA focus is when we think about high go and one core as a combined entity going to an airline.

Speaker Change #241: How does it allow you to upsell?

Speaker Change #241: Yeah, so what what we do we still go as individual businesses to the airlines, which is really typical of the high co model because even though we have, for example, even pre one core within the high co parts group or the high group.

Speaker Change #241: There are many subsidiaries.

Speaker Change #241: So, for example, in the high co parts group, there are six PMA companies and within the high co repair group.

Speaker Change #241: There are 11 repair companies.

Speaker Change #241: And those companies already went individually to the airlines to make sure they were supporting their product and to find additional opportunities.

Speaker Change #241: So we still, you know, there may be an overall if you will, high co parts group contract or and contact and well as well as a high co repair group contact and contract.

Speaker Change #241: However, we've always sent the individual businesses in because they're the ones who are most knowledgeable about their product lines.

Speaker Change #241: So you want to go sit down with an engineer or somebody in the shop. There's nobody better than somebody who's really into the details and understands everything there is to know about that particular product, the materials, the metallurgy, the dimensions, the manufacturing process, how it's inspected, how it's installed, how other people are using it.

Speaker Change #241: And that's always been the strength of high co.

Speaker Change #241: And fortunately, one core has done exactly the same thing.

Speaker Change #241: I think frankly, they saw the high co model.

Speaker Change #241: This is pre acquisition.

Speaker Change #241: They saw the high co model and they thought that it worked quite well and imitation is the greatest form of flattery and they adopted it.

Speaker Change #241: So there's no change.

Speaker Change #241: So when core goes in, the same way really understands their product and they make sure on a parts and repair basis that they're in there at the detail level.

Speaker Change #241: So now, having said that, we do get executives and other senior leadership from the airline saying, hey, look, you guys got 19,000 PMAs and you got thousands of whatever the number is, 7,000 DERs and I want to understand what we can do as a bigger package.

Speaker Change #241: And so when they want to do that, then we're able to aggregate it and show them the greater overall package and what they can achieve and we've been very successful in presenting that.

Speaker Change #241: But again, when it comes in to tactically dealing with the airline, we make sure that each individual business is well tied in to do that.

Speaker Change #241: Thank you so much.

Speaker Change #241: Thank you, Sheila.

Speaker Change #241: I'll take our next question from Michael Charmoli with the trillist securities.

Speaker Change #241: Good morning, guys.

Speaker Change #241: Thanks for taking the morning.

Speaker Change #241: Thanks for sticking around here.

Speaker Change #241: Maybe Eric, just back to Ken's line of questioning, and even what you've been talking about, you're outgrown in the market.

Speaker Change #241: You're getting the synergies and crossing up sell opportunities from when core.

Speaker Change #241: And I guess the sequential revenue growth to park question here, in FSG, sequential growth is kicked higher every quarter.

Speaker Change #241: You're over 5%.

Speaker Change #241: How do we think about FSG growth?

Speaker Change #241: If and when Boeing and Airbus can start getting these planes out the door, would you expect to see some pressure on your volumes?

Speaker Change #241: And I mean, you talked about airlines and you're picking up share, but I'm just curious if that's because they're just operating older equipment longer, and once we start to see some of the global fleet go under higher levels of warranty, is that going to create a natural headwind for you guys?

Speaker Change #241: I certainly hope not.

Speaker Change #241: I mean, I understand logically what you're saying, but I think that's also counterbalanced by the fact that a lot of aircraft have been delivered in the last 10 years. And those aircraft are significantly more expensive to maintain than the old ones, and they are all getting older by one year every year.

Speaker Change #241: So yes, to the extent there is greater retirements that would reduce sales, however, that's being mitigated by this huge group of aircraft that have been recently delivered and the newer generations and the fleet sizes are significantly larger than the older ones.

Speaker Change #241: So I think that's going to mitigate it.

Speaker Change #241: And you look at also the additional products that we offer now in particular with the one-core acquisition and the display units and all that stuff, we have significantly higher content on these newer aircraft.

Speaker Change #241: So I think that's going to mitigate it.

Speaker Change #241: And then also anecdotally, I can tell you that there are a number of airlines who are in fact operating as you suggested older aircraft, but I can tell you and don't exactly quote me on this because if I'm getting it slightly mixed up, I don't want, but directionally you'll understand what I'm saying.

Speaker Change #241: For example, on the A320, I think there's not a fifth heavy maintenance check.

Speaker Change #241: So there are continuing a number of airlines are continuing to operate this aircraft to the end of the fifth maintenance check where they hadn't been planning on doing it.

Speaker Change #241: That is not creating any revenue for us.

Speaker Change #241: So I think that there's a certain amount of older aircraft that continue to fly which aren't generating maintenance dollars.

Speaker Change #241: And that stuff is going to be pulled out.

Speaker Change #241: So I think you look at all this together and I'm very bullish.

Speaker Change #241: I mean, look, we are not, you know, the team members of HIKO, the leadership, my family, we're not invested in HIKO for any one cycle.

Speaker Change #241: Well, we're invested because we think that this is a very, very excellent space to be with both commercial travel, business and leisure, as well as defense for decades.

Speaker Change #241: And there will inevitably be little bumps here and there, but the truth is not even the experts in the industry know where this is going to come out.

Speaker Change #241: And, you know, historically, we've always sailed right through those periods.

Speaker Change #241: So I can tell you from an operating perspective that doesn't change our direction of travel or our focus on developing new products or making sure we have inventory on the shelf.

Speaker Change #241: Because whenever we've been trying, you know, whenever historically we've tried to be, if you will, too cute and too smart, you miss it.

Speaker Change #241: And we HIKO's strength is because we had the parts on the shelf when no one else did.

Speaker Change #241: That's a health layer of things, and then just one last quick one, shifting gears back to Capewell, and specifically the aerial descent.

Speaker Change #241: Is that company in their product lines, are they a competitor with trans times airborne systems, or are they complimentary, or just how to think about their positioning in a marketplace?

Speaker Change #241: Yeah, I think they're complimentary.

Speaker Change #241: I think they're complimentary.

Speaker Change #241: I think that a lot of the release mechanisms are sold to trans times, and they're they're very complimentary in the market.

Speaker Change #241: I'll jump back here guys, thanks for us staying on to take the question.

Speaker Change #241: Thanks Mike.

Speaker Change #241: We'll take our next question from Gautam Khanna with TD Cohen.

Speaker Change #241: Hey, good morning guys.

Speaker Change #241: Good morning Gautam.

Speaker Change #241: I had a quick question first for Eric just in terms of the aftermarket replacement parts.

Speaker Change #241: Did you notice any discernible differences between types of products in terms of relative growth rate, like maybe engine versus airframe or stuff sold through the distribution channel versus direct?

Speaker Change #241: I don't know if there was any way to parse it, but was it all kind of the same?

Speaker Change #241: Yeah, I would say it's all the same.

Speaker Change #241: I'm not aware of any major trends in one particular area versus the other.

Speaker Change #241: I mean, there were always puts and takes in the quarter based on a million factors frankly, we don't even understand.

Speaker Change #241: But no, I would say that the strength was very, very broad base.

Speaker Change #241: It was okay.

Speaker Change #241: And in terms of the when core integration, and I know you generally don't integrate things fully, but here, you know, you do have some common product development opportunity and the like.

Speaker Change #241: I was just wondering, like, where are we with respect to level of integration relative to where you expect to be kind of a year or two years from now?

Speaker Change #241: Are we 50% of the way there?

Speaker Change #241: Are we?

Speaker Change #241: Like, just curious.

Speaker Change #241: From a, I think what have you?

Speaker Change #241: No, I think we've done a great job.

Speaker Change #241: But I think that there's more.

Speaker Change #241: And I think, you know, I don't want to tip our competitors off as to additional stuff that we can do.

Speaker Change #241: But I think that there's still plenty of gas in the tank there.

Speaker Change #241: And as I've said before, when core is going to be, you know, the combination of hike on when core is going to be the gift that keeps on giving.

Speaker Change #241: And I think that there's a lot of additional areas where, you know, the businesses can benefit from one another, the customers can benefit.

Speaker Change #241: You know, frankly, we've got promotion opportunities within the company.

Speaker Change #241: There's a lot of, as we continue to acquire businesses, we need more, you know, we need additional team members to step up and take more responsibility.

Speaker Change #241: And I think that when we look at the HICO and the WinCore team members, really the sky's the limit for them.

Speaker Change #241: For folks who want to work hard, who want to take on more responsibility, we have a lot of, you know, whether it's acquisitions or whether it's organic growth.

Speaker Change #241: I mean, my gosh, 17% organic growth in the quarter. I mean, that's like a breakneck pace.

Speaker Change #241: And that's creating all sorts of promotional opportunities for people.

Speaker Change #241: The acquisitions are creating promotional opportunities for people.

Speaker Change #241: There's additional stuff that we can do on, in particular, on the repair side, with sharing even more repairs, frankly, across our businesses.

Speaker Change #241: There's a lot of stuff that can be done, but when you're growing at 17%, you know, it's hard just to keep up before you do all that stuff.

Speaker Change #241: So where are we?

Speaker Change #241: I would say we're definitely for sure in the first half.

Speaker Change #241: You know, where are we?

Speaker Change #241: You know, we may even be at the first quarter.

Speaker Change #241: I think there's a lot more, but it's going to happen over time.

Speaker Change #241: You know, it's not going to be something right away, and it's going to work out very well to, you know, people's personal career opportunities as they take on more, because, like you know, we've got so many acquisitions in the hopper and one of the greatest constraints that we have is not having enough internal people who we can promote to take on more responsibility at acquisitions.

Speaker Change #241: And sometimes we have to pass on acquisitions, because we don't have those internal people.

Speaker Change #241: So I think there's going to be a very big opportunity.

Speaker Change #241: Thank you, Eric.

Speaker Change #241: And Victor, just one for you.

Speaker Change #241: In the past, you've called out space at times as being something that lagged.

Speaker Change #241: How is that business trending within ETG?

Speaker Change #241: Yeah, I think overall Carlos, correct me if I have it wrong, but this year or this quarter, it's roughly flatish for us.

Speaker Change #241: I think it's a good and important business.

Speaker Change #241: Carlos, I have that right.

Speaker Change #241: I'm sorry.

Speaker Change #241: Was that the organic growth?

Speaker Change #241: Yeah, or the space?

Speaker Change #241: Yeah, it's flatish for the quarter.

Speaker Change #241: I mean, it's up, but it's for the year.

Speaker Change #241: It's flatish.

Speaker Change #241: It's up a little bit for the quarter.

Speaker Change #241: Perfect.

Speaker Change #241: Thanks, guys.

Speaker Change #241: Appreciate it.

Speaker Change #241: You're welcome.

Speaker Change #241: We'll take our final question from Tony Bancroft with the Belly Fund.

Speaker Change #241: Good morning, gentlemen.

Speaker Change #241: And congratulations on the great quarter.

Speaker Change #241: And I thought a great, great job with the K-P well acquisition.

Speaker Change #241: I'm grateful to be a five-jump champ using K-P well products and not getting dragged across the Alabama field at airborne school.

Speaker Change #241: But the regarding the displays acquisition from Honeywell, obviously, I look like a great business as well.

Speaker Change #241: A lot of opportunity for integration there into those platforms.

Speaker Change #241: Are there any other programs on the display side like that out there?

Speaker Change #241: I know there's obviously other OEs that do it, obviously.

Speaker Change #241: And then smaller companies like ISSC just want to get your thoughts on that market.

Speaker Change #241: Yeah, what we think, Tony, this is Eric.

Speaker Change #241: We think the display unit is a really good market to be in. We already do some displays.

Speaker Change #241: I can tell you that these displays in particular would be extremely difficult if not impossible to do unless it was the way that we did it through the purchase of the Honeywell IP to be able to to overhaul these.

Speaker Change #241: So I think that that's very important and we can take their IP and their product and then we're able to combine that with the ICO high quality and turn time that our customers have come to expect and deliver a terrific product.

Speaker Change #241: So I'm very, very excited about this.

Speaker Change #241: It really fits extremely nicely within our avionics package at ICO.

Speaker Change #241: Thank you, great job.

Speaker Change #241: Thank you, and we're glad that you're safe with Darra Capewell releases.

Speaker Change #241: Good safe product, I like it.

Speaker Change #241: Thank you.

Speaker Change #241: And at this time, I will turn the conference back to Lawrence Mendelson for any additional or closing remarks.

Speaker Change #241: So I think we're having a technical challenge.

Speaker Change #241: This is Eric.

Speaker Change #241: So I'd like to thank everybody for participating on our third quarter earnings call.

Speaker Change #241: We look forward to speaking with you on our fourth quarter call towards the end of December.

Speaker Change #241: If anybody has any questions, please don't hesitate to reach out to Carlos or Victor or me or our dad.

Speaker Change #241: And we're happy to speak with you and answer whatever additional questions you have.

Speaker Change #241: We thank you very much for your interest.

Speaker Change #241: We hope you appreciate the great results that we put forth today and look forward to a terrific fourth quarter.

Speaker Change #241: So stay well and enjoy the rest of your summer.

Speaker Change #241: Thank you very much.

Speaker Change #241: This concludes the call.

Speaker Change #241: Thank you, and thank you for your participation.

Speaker Change #241: You may now disconnect.

Speaker Change #241: Thank you.

Speaker Change #241: [inaudible][inaudible] Michael, Michael, Michael, Michael,