Q4 2024 HEICO Corp Earnings Call
Okay.
Speaker Change: Welcome to the HEICO Corporation fourth quarter 2024 financial results call. My name is tomorrow, and I will be your operator for today's call.
Speaker Change: Certain statements in this conference call will constitute forward looking statements, which are subject to risks uncertainties and contingencies heico's actual results may differ materially from those expressed in or implied by those forward looking statements.
Speaker Change: Factors that could cause such differences include the severity magnitude and duration of public health threats, such as the COVID-19, pandemic heico's liquidity and the amount and timing of cash generation.
Speaker Change: Lower commercial air travel airline fleet changes or airline purchasing decisions, which could cause lower demand for goods and services.
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 U S and or foreign customers or competition from exists.
Speaker Change: 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 development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales.
Speaker Change: Cyber security events or other disruptions of our information technology systems could adversely affect our business.
Speaker Change: Our ability to make acquisitions, including obtaining any applicable domestic and foreign governmental approvals and achieve operating synergies from acquired businesses.
Speaker Change: Customer credit risk interest foreign currency exchange and income tax rates and economic conditions, including the effects of inflation within and outside of the aviation defense space Medical telecommunications, and electronics industries, which could negatively impact our costs and <unk>.
Speaker Change: Revenues.
Speaker Change: He is listening to this call are encouraged to review all of Heico's filings with the Securities and Exchange Commission, including but not limited to filings on Form 10-K Form 10-Q, and form 8-K, we undertake no obligation to publicly update or revise any forward looking statement whether.
As a result of new information future events or otherwise except to the extent required black eye applicable law.
I now turn the call over to Laurens, Mendelson, Heico's, Chairman and Chief Executive Officer.
Speaker Change: And Mr. Mendelson. Please go ahead.
Laurens Mendelson: I'm sorry, Thank you and good morning to everyone on this call.
Speaker Change: We thank you for joining us and we welcome you to this HEICO fourth quarter fiscal 'twenty four earnings announcement teleconference.
Speaker Change: I'm, Larry Mendelson, Chairman and CEO of HEICO Corporation.
Speaker Change: I am joined here this morning by Eric Mendelson Eric.
Eric Mendelson: As Heico's co president and President of Heico's flight support group.
Eric Mendelson: Victor Mendelson Heico's co president and President of Heico's, Electronic technologies group and Carlos Macau.
Eric Mendelson: Our executive Vice President and CFO.
Eric Mendelson: Now before discussing our record operating results I want to sincerely. Thank heico's talented team members for their exceptional contribution to our success your dedication to exceeding customer expectations and achieving operational.
Eric Mendelson: Excellent is driven outstanding results and reinforces my confidence in heico's future.
Eric Mendelson: Over the past several years, we have achieved extraordinary growth in commercial aviation emerging stronger than ever from a very challenging period in the aerospace industry.
Eric Mendelson: Our team members' resilience and adaptability during this time of rapid recovery and expansion have been remarkable.
Eric Mendelson: Equally commendable is the agility shown by our recent acquisitions, which have seamlessly integrated into our operations and enhanced our collective success.
I'm also encouraged by our progress in expanding our presence in key markets, such as defense and space.
Eric Mendelson: These sectors are critical to long term strategy and our team members' commitment to delivering innovative reliable and best cost solutions has strengthened tycho reputation.
Eric Mendelson: As a trusted partner.
Eric Mendelson: This focus for us for continued growth and success across diverse markets.
Eric Mendelson: I will now summarize the highlights of our fourth quarter.
Eric Mendelson: Go 24 record results.
Eric Mendelson: Consolidated operating income and net sales in the fourth quarter of fiscal 'twenty four.
Eric Mendelson: Resent record results for HEICO.
Eric Mendelson: An improved by 15%.
Eric Mendelson: And 8%, respectively as compared to the fourth quarter of fiscal 'twenty three.
Consolidated net income increased 35%.
Eric Mendelson: To a record 139 7 million or 99 cents per diluted share in the fourth quarter of fiscal 'twenty before and.
Eric Mendelson: And that was up from 103 4 million or 74 cents per diluted share in the fourth quarter of fiscal 'twenty three.
Eric Mendelson: The flight support group set all time quarterly net sales and operating income records in the fourth quarter of fiscal 'twenty four.
Eric Mendelson: Improving 15% and 35% respectively over the fourth quarter of fiscal 'twenty three.
Eric Mendelson: The increases principally reflect strong 12% organic growth mainly attributable to increased demand for his flight support group's commercial.
Eric Mendelson: <unk> products and services as well as the impact from our profitable fiscal 'twenty three and.
Eric Mendelson: 24 acquisitions.
Eric Mendelson: Consolidated EBITDA increased 13%.
Eric Mendelson: $264 million in the fourth quarter of fiscal 'twenty, four and that was up from $234 2 million in the fourth quarter of fiscal 'twenty three.
Eric Mendelson: Our net debt to EBITDA ratio was 2.06 times as of October 31, 24, and that was down from 3.04 times as of October 31 23.
Eric Mendelson: Our excellent operating results have allowed us to early achieves the fork is we made a year ago.
Eric Mendelson: Our net debt to EBITDA ratio would return to a historical level of about two times within roughly one year to 18 months following the wind core acquisition and that excluded the impact of any additional acquisitions.
Eric Mendelson: <unk>.
Eric Mendelson: Our acquisition pipeline is extremely robust with opportunities in both flight support and Atg and.
Eric Mendelson: And we intend to follow our time tested strat.
Eric Mendelson: <unk> strategy of opportunistic acquisitions that continue to expand the cash generating ability of HEICO.
Eric Mendelson: Cash flow provided by operating activities increased 39%.
Eric Mendelson: $205 6 million in the fourth quarter of fiscal 'twenty, four and that was up from $148 4 million in the fourth quarter of fiscal 'twenty three.
Eric Mendelson: Yesterday Heico's board of directors declared an <unk> 11 cents per share cash dividend payable in January 2025, and this represents our 93rd consecutive dividend.
Eric Mendelson: And this reflects their continued confidence in the strong cash flow generation of HEICO.
Eric Mendelson: Now, let me talk about acquisition activity.
Eric Mendelson: Over the past few months, our Atg group made several strategic acquisitions.
Eric Mendelson: Acquiring 70% as the private limited.
Speaker Change: In November 2004.
Speaker Change: They acquired 87, 9% of mid continent controls.
October 24.
Speaker Change: And they acquired 92.5% of more way powered solutions in September.
Speaker Change: 2024.
Speaker Change: In addition in August 24 hour flight support group acquired the aerial delivery and dissent devices division of cake will aerial systems.
All of these acquisitions were funded using cash provided by operating activities.
Speaker Change: For Cape Wil, which was principally funded using proceeds from our revolving credit facility.
Speaker Change: We expect each of these acquisitions to be accretive to our earnings within the following year.
Speaker Change: Acquisition.
Speaker Change: At this time I would like to introduce Eric Mendelson co President of HEICO and President of Heico's flight support group and he will discuss the fourth quarter results of the flight support group.
Eric Mendelson: Eric Thank you very much.
Eric Mendelson: Right support group's net sales increased 15% to a record $691 $8 million in the fourth quarter of fiscal 'twenty four up from $601 7 million in the fourth quarter of fiscal 'twenty three.
Eric Mendelson: The net sales increase reflects the impact from our fiscal 'twenty, three and 'twenty four acquisitions and very strong 12% organic growth.
Eric Mendelson: Organic net sales growth, mainly reflects increased demand across all of our product lines.
Eric Mendelson: The one core operations continue to exceed our expectations and we are convinced this was an excellent acquisition for HEICO.
Eric Mendelson: Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs, which is translated into excellent growth opportunities and success for both our legacy businesses and when we.
We continue to operate <unk> as a standalone business operation I have defined our strategy as cooperation cash capabilities and consistency without consolidation.
Eric Mendelson: Sales earnings and margins through this was the perfect strategy.
Eric Mendelson: As I've mentioned before we continue to make good progress working together and serving our customers and a combined seamless fashion. Some examples of how we are working together include one utilization of all HEICO and when core PMA in <unk> at all repair stations to commercial.
Eric Mendelson: And defense aftermarket sales cooperation three.
Eric Mendelson: Three went core e-commerce platform lists all HEICO noncompetitive PMA is.
Eric Mendelson: Poor when core is utilizing heico's manufacturing base to quote many new products five engineering and regulatory cooperation.
Eric Mendelson: VIX sharing our best in class vendors and seven various back office synergies such as insurance payroll retirement benefits and export compliance that will help offset additional regulatory compliance costs, such as socks, and our FAA Oda.
Eric Mendelson: In many in addition.
Eric Mendelson: The Ffg's defense sales continue to grow and offer an excellent opportunity.
Eric Mendelson: Many people have asked us what the U S Presidential administration change will mean for HEICO.
Eric Mendelson: In short we are very excited about it whether it's the chance to sell more of our much lower cost alternative aircraft replacement parts to save the government and taxpayers significant money or other opportunities. The possibilities are many HEICO has always been about finding cost.
Eric Mendelson: Savings were best cost solutions for our customers, whether theyre defense or commercial customers and not about getting the highest price added them.
Another example of the opportunity set is the components, we make for missile defense systems, which is a strong and growing business for us.
Eric Mendelson: Defenses are increasingly important to the United States and our allies with sales of these products growing dramatically amidst what is effectively a shortage of defense missiles, and a very large backlog stretching over years, we expect meaningful growth from this existing backlog alone.
Eric Mendelson: Moving on to operating income.
Eric Mendelson: Support groups operating income increased 35% to $154 5 million in the fourth quarter of fiscal 'twenty four up from $114 6 million in the fourth quarter of fiscal 2003.
Eric Mendelson: The operating income increase principally reflects the previously mentioned net sales growth a decrease in acquisition costs and an improved gross margin.
Eric Mendelson: The improved gross profit margin principally reflects higher net sales within our aftermarket parts.
Eric Mendelson: And repair and overhaul parts and services product lines.
The flight support group's operating margin improved to 22, 3% in the fourth quarter of fiscal 2004.
Eric Mendelson: Up from 19% in the fourth quarter of fiscal 2003.
Eric Mendelson: Given that acquisition related intangible amortization expense consumed approximately 270 basis points of our operating margin in the fourth quarter of fiscal 'twenty for the Ssg's cash margin before amortization or what we call EBITDA and the way we measure our businesses internally.
Eric Mendelson: With approximately 25.0%, which has been consistently excellent during 2024 and is 300 basis points higher than the comparable FSD cash margin of 22% in the fourth quarter of fiscal 2003.
Eric Mendelson: I am extremely pleased with these results.
Eric Mendelson: The increased operating margin principally reflects the previously mentioned lower acquisition costs and improved gross profit margin as well as a higher level of SG&A efficiencies, resulting from the previously mentioned net sales growth.
Eric Mendelson: Now I would like to introduce Victor Mendelson co president of HEICO and President of Heico's Electronic technologies group to discuss the fourth quarter results of the electronic technologies group. Thank you Eric the electronic technologies group's net sales were $336 2 million in the fourth quarter fiscal 'twenty four as.
Eric Mendelson: Compared to $342 $5 million in the fourth quarter of fiscal 2003, the net sales decrease in the fourth quarter, principally reflects lower defense and other electronics net sales, partially offset by increased space products net sales and the impact from our fiscal 'twenty four acquisitions. This is in <unk>.
Eric Mendelson: Line with our expectations as we've commented on earnings calls over the past few quarters and is consistent with inventory destocking at some customers, particularly those in the non aerospace and defense markets.
Eric Mendelson: Our defense sales growth was nicely healthy in the fiscal 2004 year, though this growth varied highly by quarter, which as you know has historically been the case and we anticipate the <unk> quarterly defense sales volatility will continue.
Eric Mendelson: But the overall trend remains positive as expected other electronic net sales were lower during the fourth quarter of fiscal 'twenty four compared to the fourth quarter of fiscal 'twenty three due to customer restocking the low single digit organic net sales decline was a much lower decline than in prior quarters.
Eric Mendelson: And I believe recent better order flow and backlog indicate the destocking trends are improving I continue to expect to return to growth in these and other electronic end markets and businesses during the first half of fiscal 'twenty five.
Eric Mendelson: <unk> fourth quarter record backlog and strong overall orders support our optimism and as the non A&D markets improve we continue to anticipate growth into our next fiscal year.
Eric Mendelson: The electronic technologies groups operating income was $81 $8 million in the fourth quarter of fiscal 'twenty, four as compared to $86 4 million in the fourth quarter fiscal 'twenty three the operating income change principally reflects a less favorable gross profit margin mainly from the previously.
Eric Mendelson: Mentioned decreased defense and other electronics net sales, partially offset by the previously mentioned increased space products and net sales.
Eric Mendelson: The electronic technologies group's operating margin was 24, 3% in the fourth quarter of fiscal 'twenty four as compared to 25, 2% in the fourth quarter of fiscal 'twenty. Three importantly, before acquisition related intangibles amortization expense, our operating margin was above two.
Eric Mendelson: 28% as intangibles intangibles amortization consumes around 400 basis points of our margin now that's how we judge our businesses is that most closely correlates to cash so on what we think of as a true operating basis. These are excellent margins and we are very pleased with them.
Eric Mendelson: Okay.
Eric Mendelson: The operating margin change principally reflects the previously mentioned less favorable gross profit margin and a lower level of SG&A efficiencies.
Turn the call back over to Larry Mendelson. Thank you Victor Thank you.
Larry Mendelson: Now as for the outlook as.
As we look ahead to fiscal 'twenty five we do anticipate net sales growth in both flight support and electronic technologies, driven primarily by organic growth supported by strong demand for the majority of our products.
Larry Mendelson: In addition, we plan to drive growth through our recently completed acquisitions, while positioning ourselves to capitalize on potential opportunities from future acquisitions and to provide new cost savings and best cost opportunities.
Larry Mendelson: Two our government in the new administration's efficiency efforts.
Larry Mendelson: Our priorities include continued strong new product and services development.
Larry Mendelson: Further expanding market penetration.
Larry Mendelson: In maintaining our financial strength and flexibility.
Larry Mendelson: All with a strong emphasis on delivering long term value to our shareholders.
Larry Mendelson: In closing I would like to reiterate my heartfelt appreciation.
Larry Mendelson: Our exceptional team members for their steadfast support and commitment to HEICO, our strategy of cultivating a diverse portfolio of outstanding businesses continues to yield positive results for our shareholders.
Larry Mendelson: With strong key markets fiscal 'twenty five is poised to be another successful year.
Speaker Change: We thank you for your continued confidence in hyattsville and as I've shared before I remain highly positive about heico's future. Thank you all and now I will turn the call over to the operator for questions.
Speaker Change: Thank you.
Speaker Change: Like to ask a question please signal by pressing star one on your telephone keypad.
Speaker Change: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: Again press Star one to ask a question.
Speaker Change: And we will take our first question from Larry Solow with CJS Securities.
Larry Solow: Great. Good morning, congratulations on another good quarter good year.
I guess the first question, maybe a couple for Eric gave US a lot of good detail on the one core acquisition. It sounds like things are really going well there.
Larry Solow: Curious you mentioned some of them.
Larry Solow: Obviously this is one of the bigger acquisitions that could get EBITDA and then you spoke about a lot of things. There curious as we look out going forward or are there still opportunities to.
Larry Solow: To gain even more revenue synergies are the things that you've had this.
Larry Solow: Hood for a little more than a year under the umbrella excuse me things that yet.
Larry Solow: Maybe you didn't think were available or sort of positive surprises.
Larry Solow: That you can work on going forward on that side of the business.
Speaker Change: Good morning, Larry and thanks for your question.
Speaker Change: First of all.
Speaker Change: As you pointed out we're very happy with the <unk> acquisition. It has been immensely successful and exceeded all of our wildest expectations number one starting with the people. They are outstanding they really fit the HEICO culture of the companies are very similar.
Speaker Change: And the businesses are working extremely well together.
Speaker Change: Sure.
Speaker Change: A unique situation that all of our.
Speaker Change: All of our aftermarket businesses are running of course at record numbers performing exceptionally well and they are so busy just trying to accomplish what they each got in their backlog in terms of getting the parts out the door and developing all this new stuff that we've just left them alone right now.
Speaker Change: Do think that there is an additional opportunity in.
Speaker Change: Further cooperation and going to the customers with a bigger basket, but as of now I mean, you can see with these kinds of results, 12% organic growth 13% in the aftermarket.
Speaker Change: Following a tremendous deal like that beats, what anybody thought was possible. So we're very very happy with that but we do think that there are additional opportunities. Our teams are working very closely together in the parts and repair side to harvest those opportunities we've already.
Speaker Change: <unk> been very successful by putting all of the Haikou in the wind <unk> as well as the HEICO into D. HEICO on linked quarter DDR repairs together. So the hour repair stations can focus on particular unit and really drive costs down and service levels up to the customer and we've been very success.
Speaker Change: Well in that and we anticipate continued success in that area. So yes I think.
Speaker Change: <unk> said internally I think one quarter is going to be the gift that keeps on giving not only because of one quarter, but because of the HEICO legacy businesses and really being the perfect fit there and just going so well.
Speaker Change: Got it.
Speaker Change: You mentioned that you touched on it briefly.
Speaker Change: Your opportunities maybe increasing on the military side of the business under the New administration.
Whether it be through those or whatever it just does seem like there are a lot of opportunities on the military side, rather than the government side.
Speaker Change: Any more color there is that.
Speaker Change: Something we should look forward to near term is that more of a mid to longer term opportunity I know you've always been kind of focused obviously getting more into the military.
Speaker Change: Aircrafts, Todd I guess, right, where I think theres not much on the PMA side, there so any more color there would be great.
Speaker Change: That's a great question and we are extremely excited about this opportunity.
Amy: Amy This is real simple low hanging fruit.
Speaker Change: She is something I think everybody in the country realizes that we've got to spend our dollars more wisely and HEICO offers various solutions without getting into the specifics because we have our competitors on this call.
Speaker Change: And I welcome them do it but of course, we can't lay out a roadmap for them of what we're going to do but needless to say I think there is a tremendous amount of low hanging fruit HEICO was working on all of this before the election and so we were very hopeful that there would be a number.
Speaker Change: <unk>.
Speaker Change: Breakthroughs, we are still hopeful of that and does just pours more fuel on the fire.
Speaker Change: When you look at the budget deficit in the amount of money that has to be cut there are tremendous cost savings opportunity and we think that it's not only cost but there is also an without I have to be very careful because of course I don't want to provide a roadmap to our competitors, but there are a number of.
Speaker Change: <unk> areas whereby.
Speaker Change: In particular in the development of new products, where HEICO can offer increased quality and by the way that's not just the tagline net proven and through various.
Rig tests increased quality better development timelines and lower cost. So I think those is going to be outstanding for US now having said that you asked is it's going to be short medium or long term I think it is going to be more medium term in the short term. The government has its money committed so.
Speaker Change: That's going to be what it is but I do feel that this is just additional clarity and legs for HEICO as we move forward, but I expect the opportunities to be very very substantial because it's just not only about price.
Speaker Change: Got it great I appreciate all that color and maybe just last quick question for Carlos just margins I know you don't guide, specifically, but just sort of the high level outlook for the coming year SSG was.
Speaker Change: Looking back was pretty consistent.
Speaker Change: Fiscal 'twenty four.
Speaker Change: E T G I was a little bit more mixed dependent so just any thoughts as we look to fiscal 'twenty.
Speaker Change: I think.
Speaker Change: As we look at the flight support group, it's performing as expected.
Speaker Change: We're posting.
Speaker Change: We're supposed to meet 2023, and 24% operating margins pretty consistently I think our build on that will be slight improvements as we continue to grow the base of the business will get SG&A leverage on our some of our fixed costs, which is which should be additive to the margin very similar to what we did the decade prior to COVID-19 it will be small.
Speaker Change: <unk> is that going to be ratcheted moves.
Speaker Change: And look in the Atg I've been saying for a while that.
When the mix settles out I would expect that segment on a GAAP basis to come around the 24% margin range and this quarter I was very pleased to see them exceed that so.
Speaker Change: As I look into 2005, I would expect the business to continue to be lumpy as it always has been we will have quarters that are higher and lower but my baseline is around that 24% range.
Karl: Got it great. Thanks, Karl I appreciate it.
Speaker Change: Thanks, Larry.
Speaker Change: And we'll take our next question from Robert Spingarn with Malleus research.
Speaker Change: Good morning. This is Scott on for Rob Spingarn.
Good morning.
Hi, Scott Eric Good morning.
Speaker Change: Alright.
Speaker Change: You brought up.
Speaker Change: Saving money across the federal government. So just wondering can you quantify right now what percentage of SSG sales are directly to the Doj.
Speaker Change: And then for programs other than the commercial derivatives like the P. Eight have you already started the process of aggregating a list of potential parts that could be sold to the Doj.
Speaker Change: Yes, so as far as what percentage goes to the Dod I don't have that information in front of me.
Speaker Change: But I can tell you that defense is approximately a quarter of <unk>.
Speaker Change: Order of the SSG sales so.
Speaker Change: To get an idea there.
Speaker Change: In terms of.
Speaker Change: The opportunity we.
Speaker Change: The opportunities not only in the areas that you mentioned, but yet we have come up with a list. We are aware of what the opportunities could be of course, I don't want to I can't outlined here on the call, but we are.
Speaker Change: Is quite substantial and.
Speaker Change: The government really should be should be saving these dollars.
Speaker Change: Okay, and then also going back to <unk>.
Speaker Change: They used a lot of build to print shops in the past the manufactured parts you talked about in sourcing some of that manufacturing can you talk about where you are in that journey and is there more cost savings to gain from in sourcing and even more of that work.
Speaker Change: Absolutely Yeah, we've got very broad manufacturing capabilities at HEICO.
Speaker Change: And we are focusing on wind quarters robust new product development.
Speaker Change: In terms of manufacturing that stuff within various HEICO businesses. There is an opportunity to resource some of the existing business as long as our vendors treat us right in our payroll with us we're very loyal to them. So they're as they have nothing to worry about and frankly, the new pipeline is so robust that.
Speaker Change: It will really keep outlet shops very busy.
Speaker Change: But again, we think the opportunity is really very very strong in that area.
Speaker Change: Okay. Thanks for taking the questions and happy holidays.
Speaker Change: And happy holidays to Scott.
Speaker Change: Our next question comes from Ken Herbert with RBC capital markets.
Speaker Change: Yeah.
Speaker Change: Yes, hi, good morning, Thanks for taking the question.
Speaker Change: Eric just just just start as you look at SSG organic growth within the fiscal 'twenty five I know you are.
Speaker Change: Probably not going to get too specific but is there any reason, we shouldn't see double digit organic growth again across the SSG in fiscal 'twenty five.
Speaker Change: Yes.
Speaker Change: No I don't think Theres any reason you shouldn't see it.
Speaker Change: We're very optimistic.
Speaker Change: Our three.
Disaggregated revenue buckets of parts repair and specialty products. They are all very strong.
Speaker Change: So I think that that is a double digit.
Speaker Change: Expectation is reasonable I mean of course, we're only 45 days into the year. So we always want to be a little circumspect and always at the end of the year between Thanksgiving and the new year.
<unk> can be skewed one way or the other depending on shipments from our vendors to us and then what the customers want in the way they manage their inventory. So I don't like to take the months of November and December in order to prognosticate, the rest of the year, but yes, our internal numbers are for double digit organic.
Speaker Change: Within the flight support.
Speaker Change: And again very strong in all three of our segments.
Speaker Change: Okay, that's very helpful.
Speaker Change: This is Carlos just keep in mind.
Speaker Change: Well, we don't really have seasonality to our business one thing Eric just pointed out is very important in our first quarter typically with the holidays tend to be a little lighter than the second third and fourth quarter. So.
Speaker Change: Just keep that in mind, when you're thinking about what he just said, yes, and always November and December I mean for the 35 years they've been at the company in November and December are historically lower types of months in January is always a month that drives for the first quarter. So of course, we're not yet in January so it's hard.
To say, but.
Speaker Change: Our internal numbers are very optimistic in our business heads are.
Speaker Change: Extremely optimistic and frankly more optimistic than I've ever seen them.
Speaker Change: Okay, that's very helpful.
Speaker Change: One more if I could.
Speaker Change: Obviously been a lot of commentary recently around greater confidence in sort of execution in terms of new aircraft deliveries and new engine deliveries out of out of the Oems.
Speaker Change: What's your view on on if things do start to perform better there.
Speaker Change: How quickly can Ken fleets really start to.
Speaker Change: Sort of turnaround to become younger how quickly do you think spending on some of the legacy assets would actually start to slow in the legacy aircraft will start to slow.
Speaker Change: Is that tied does ideally get better in 2025 and 26 in terms of just.
Speaker Change: Just sort of the execution on the airframe and the engine OEM side, if that makes sense.
Speaker Change: Yes, so number one I have tremendous respect for the airframe and the engine Oems Theyre phenomenon companies they build incredible products.
Speaker Change: But unfortunately, they are at the they're dependent on their supply chains and those supply chains as we know got terribly beat up.
Speaker Change: Through Covid.
Speaker Change: As many companies slash their orders and the people are not.
Speaker Change: The suppliers.
Speaker Change: So they talk about increasing the production rates and I think thats, the intent and marginally they have in some areas, but I think they've had a lot of challenges and I can tell you I go around to our businesses and I see the supply chain challenges that exist and they are still tremendous.
Speaker Change: So I personally am not.
Speaker Change: Putting any money down that the.
Speaker Change: Supply from the.
Speaker Change: The OEM suppliers is going to turnaround substantially I have not seen evidence of that.
Speaker Change: So I expect the aftermarket to continue to remain very strong and I think airlines have been beaten so badly by the.
Speaker Change: Deferrals.
Speaker Change: They don't want to get into situation, where they don't have the legacy assets to be able to complete their reps and their schedule. So I expect them to continue to spend money I mean, not foolishly, but they've got to always have a backup plan and thats why I think the aftermarket is going to be strong.
Speaker Change: In addition, if you look even with the OEM deliveries, increasing if you look at the.
Speaker Change: Available seat miles and what IATA predicted I mean, 8%.
Speaker Change: Available seat miles are increasing in 2025. This is a huge number and frankly.
Speaker Change: It would be very easy to absorb the additional seats and keep the older aircraft in service. So we based on the order trends that we see it remains very very strong for <unk>.
Speaker Change: For the legacy aircrafts.
Speaker Change: At this moment don't see a change there.
Speaker Change: Okay.
Speaker Change: Great. Thanks, Eric.
Speaker Change: Thank you.
Speaker Change: Next question comes from Kannan, <unk> with TD Cowen.
Speaker Change: Yes, thanks, good morning, guys.
Speaker Change: Good morning.
Speaker Change: Hey, I was wondering.
Speaker Change: D and PMA parts, what historically has been.
Speaker Change: The disconnect there on their ability on their willingness to go.
Speaker Change: To entertain buying those is it.
Speaker Change: Is it I'm just curious like do they require OEM parts or is that.
Just culture I'm, just curious like what actually.
Speaker Change: Has prevented.
Yes.
Speaker Change: Yes.
Speaker Change: They don't have a process as Carlos says they don't have a box to check and what the airlines had to have and this is what we worked on 35 years ago.
Speaker Change: First went into the airlines and showed them what we can do instead, we could develop all this additional stuff. They said to me that's a great idea, but we can't buy PMA parts.
Speaker Change: And I said, well what do you mean, you're already buying our combustion chambers, where the fuel in areas mixed and burned and we've supplied those parts do you for 20 years with the pharma service record.
Speaker Change: You should be able to buy these additional parts and this is the process that we're going to use with the FAA and frankly. This is the box that you have to check and thats been immensely successful. So I think the government must change this cannot be business as usual the United States cannot continue.
<unk> to irresponsibly run at these budget deficit.
Speaker Change: And there is no reason if a part is good enough for the president or the vice President or Senators representatives or the secretary of defense to fly on when they fly commercially maybe the president doesn't but everybody else certainly does when they fly commercially but it can't be used.
Speaker Change: Where the Dod that is nonsense.
Speaker Change: It's a relic of the past and I think the government recognizes this is low hanging fruit this must change and frankly heico's. The one to do it and we've got a lot of opportunities I need to be very careful and obviously, you know us well and I don't want to get into details on specifically what.
Speaker Change: But you don't have to be a rocket scientist to figure out the opportunity here and we think it is we think it's very substantial and I just wanted to add that we still think that the current providers are going to continue to do very well in HEICO provides product to the Doj.
Speaker Change: And.
Speaker Change: There is still tremendous number of products out there and not everything lends itself to what we can provide but I think what we can provide is very significant for HEICO.
Speaker Change: That makes sense and just to follow up on that as the opportunity biggest on the commercial derivatives like tanker and.
Speaker Change: You may have comparable products on the commercial.
Speaker Change: Aircrafts that theyre built on or is there a big opportunity beyond that.
I think that there is a very large opportunity in both.
Speaker Change: On the commercial derivatives. This is a no brainer I mean this is Jeff.
Speaker Change: It's a no brainer and again they already use some of the parts. So it's not that they're fundamentally opposed it just they need that box to check.
Speaker Change: And then when you go outside of the commercial derivatives. There are also significant savings opportunities that can occur and.
Speaker Change: We think that there are very large opportunities there as well.
Speaker Change: But again.
Speaker Change: Don't want to over commit on this because these are not short term. This is not a fiscal 2025 impact. This obviously comes later, but I think it's a very nice add on to all of the good stuff that we're currently doing.
Speaker Change: That makes sense and last one Carlos I was wondering if you could give us some framework. So the inorganic contribution in the upcoming fiscal year based on what you've already acquired.
Speaker Change: Yeah sure so.
Speaker Change: You know I don't want to I don't want to guess subsidiary outlooks I think that the.
Speaker Change: The contributions will be.
They're not going to be material if thats helpful.
Speaker Change: Careful because we've not we've done recent some recent acquisitions and I don't want to get into the subsidiary details, but on the SSG side.
Speaker Change: <unk> core lapsed this quarter.
Speaker Change: And we will have cable next year in the organic and the inorganic bucket for the first three quarters.
Speaker Change: It won't be material to the segment and of course in the Atg. We had three recent acquisitions that again I don't think its going to immaterial to the quarter. So.
Speaker Change: It's pretty much mostly organic next year.
Speaker Change: Great. Thanks happy holidays guys.
Speaker Change: Neil.
Speaker Change: Yes.
Speaker Change: Our next question comes from Sheila <unk> with Jefferies.
Speaker Change: Good morning, guys and thank you for the time, Eric if I could.
Speaker Change: Let's start with you if that's okay. Please if we could just talk about the organic growth within <unk>.
And then just the different parts of the business right after market parts of that 13%.
Speaker Change: Hey, Dan from 17 last quarter, how do you think about the parts business trending into 'twenty five.
Jeff: Sorry about that Jeff.
Jeff: And what would it be.
Jeff: With mras versus airlines the demand there.
Speaker Change: Well first of all good morning, Sheila and thank you for your questions.
Speaker Change: We are very optimistic on the continued growth as I mentioned in all of the segments in breaking down our organic growth.
Speaker Change: The parts side definitely had the highest organic growth.
Speaker Change: In 2024.
Speaker Change: And the area with the lowest organic growth was our specialty products. We think that in 2025 based on backlogs that we already have in the specialty products area that our organic growth is going to accelerate in that area.
Speaker Change: And it will remain a strong double digits within the parts side.
Speaker Change: Component repair is probably going to be somewhat in between those.
Speaker Change: But we also anticipate I would say strong.
Speaker Change: I said double digit growth in <unk>.
And expecting double digit growth frankly in all three of our disaggregated areas.
Speaker Change: Okay.
Speaker Change: Specialty products sure.
Speaker Change: And then maybe if we could talk about one quarter for a minute.
Way to quantify the revenue synergies.
Speaker Change: How you think about there.
Speaker Change: <unk> thousand Skus relative to your 13000 or so how many have penetrated into your customer base and then maybe.
Yes.
Speaker Change: PMA question unrelated to the defense side of the business.
Speaker Change: The P&L, becoming ear under the new administration.
Speaker Change: Yes, so specifically with regard to win core if you take a look at or at our organic growth within parts and component repair Youll see that there is a proxy there's over $60 million approximately 62.
Speaker Change: Organic growth in the fourth quarter in just parts and repair that's all organic and remember we owned one core basically for the pretty much the entire fourth quarter of last year to for HEICO and weren't core to grow $60 million organically no acquisitions.
Speaker Change: I mean, thats huge and frankly far beyond anything that I thought was ever possible. We've got incredible team incredible leaders in these businesses I think heico's competitive advantage is the way that we have these businesses structure, where we have them as individual business units each.
Speaker Change: With its own business head and its own.
Speaker Change: Leadership team combined with central sales forces to be able to help them get out there. There is a tremendous amount of unsold potential. There is so much more help that we can give our customers and its just the matter of getting out there getting in front of them and making sure that they switch from.
Speaker Change: <unk>.
Speaker Change: There are legacy solution into a new HEICO solution. So I expect the.
Speaker Change: Future to be very strong.
Speaker Change: I am very encouraged when I go out and talk to our folks so are they.
Speaker Change: When I look also into the specialty products when we look at what our backlogs are in these areas. There are tremendous and now theyre really the challenge is executing and getting product from.
Speaker Change: The vendors out there in the field and subcontractors because the market is incredibly tight I don't go to any businesses, where they say Oh, yes. We're all caught up everything is back to 2019, not a prayer I mean, the labor force has changed.
<unk>.
Speaker Change: It's very difficult to be able to ramp and so thats why im very bullish in all of our areas.
Speaker Change: You had asked about the military side I think Thats just added opportunity you know because we've spoken about it that for years HEICO is.
Speaker Change: Operated in that area and we've had limited success, but.
Speaker Change: As a result of the comments that I made in the prior couple of questions.
Think this is really low hanging fruit for HEICO.
Speaker Change: And the government got too.
Speaker Change: Cost savings and imperative and the New administration certainly is doing that.
Speaker Change: To a degree that we've never seen before in the history of this country and its wise that they do so because as a country, we're running out of money and HEICO can provide again not only the cost savings as a result of using our parts are using our technology, but also when these systems are developed by the government there is a tremendous.
Speaker Change: Approach, which slows things down and I'm really very excited for those because I think they can accelerate a lot of these processes and HEICO is going to be I think a tremendous beneficiary across our flight support as well as our electronic technologies business, because we are smaller.
Businesses that are competitively focused in various areas lower cost higher quality, we can get it done quickly and if the government wants it fast.
Speaker Change: I believe it's a huge opportunity for us.
Speaker Change: Eric I'm, sorry, I meant more on the commercial side can you think of administration makes it.
Speaker Change: PMA commercial pipe as well.
Speaker Change: Yeah.
Speaker Change: I think I mean look the administrations have always been.
Speaker Change: Supportive.
Speaker Change: <unk> has been frankly outstanding to work with over the last 35 years I expect that to continue I don't expect a change there I mean, if you will the civilian workforce has been great to work with so I expect everything continuing and no change in our ability to get PMA.
Speaker Change: I mean, we've gotten more PMA than ever and I expect that to continue.
Speaker Change: Thank you.
Speaker Change: Thanks Sheila.
Speaker Change: And our next question comes from Scott <unk> with Deutsche Bank.
Speaker Change: Hey, good morning, Scott.
Speaker Change: Good morning, Eric can you give us any sense for what the growth acceleration that specialty products could look like next year because it sounds like you've got a lot of tailwind is there between the OE ramp and the missile defense growth and I was just looking at my model and there was a period of time in 2022, and 2023 of our specialty products is growing over 50% pretty regularly so.
Speaker Change: Just trying to get too excited here, but youre trying to get a sense for whether slipped.
Speaker Change: Like that could perhaps repeat itself. Thank you.
Speaker Change: Yeah I.
I mean.
Speaker Change: The internal numbers I've got our really strong over in specialty products.
Speaker Change: As I mentioned really the key is being able to get.
Speaker Change: Product out.
Speaker Change: Certain suppliers.
Speaker Change: But I think.
Speaker Change: From what we're seeing and based on what the budgets are and everything.
Speaker Change: At least 10% organic growth seems to be very reasonable.
Speaker Change: And when you think of it I know that on a spreadsheet and I think everybody appreciates is done a spreadsheet. It's easy you put in one.
Speaker Change: And.
Speaker Change: It's easy to type that in but when you think about this when a business grows organically by 10% a year. It's doubles in seven years Quadruples in 14 years and these businesses to accomplish a 10% growth rate I mean, I think thats just.
Speaker Change: Tremendous an incredible in this market that we've got with constrained material constrained labor, so I'm very optimistic.
Speaker Change: Domestic in those areas.
Speaker Change: Okay, Great and then just one follow up Eric I think it seems like Theres a number of airlines that have built up some inventory of spare aftermarket parts.
Speaker Change: I think United is just one of them I guess have you seen any evidence of customer inventory build for your specific parts or are airlines generally pretty hand to mouth for HEICO parts.
Eric Mendelson: Yes, I think on HEICO parts, Theyre pretty hand to mouth I mean, they certainly don't tell us when they have a surplus I'm not aware of.
Eric Mendelson: Any material Oversupplies that the airlines I mean, theyre all parts very badly there are always puts and takes.
With that but.
Eric Mendelson: I think it's all very strong also tyco.
Eric Mendelson: <unk> got a really good delivery program and we're able to supply. So many of these parts in the month of water.
Eric Mendelson: Airlines are either they don't typically have to overstock, our parts because they can rely on us pretty well.
Speaker Change: Right. Okay. Thank you have you held us thanks.
Speaker Change: Thanks, and happy holidays to you too.
Speaker Change: Your next question comes from Noah <unk> with Goldman Sachs.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Good morning Noah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Happy holidays likely too.
Speaker Change: Hey, I wanted to ask you about the FSD margin fielding some questions on that last night and this morning.
Speaker Change: I think the final full year is probably a decent amount higher than what you were projecting at the beginning of the year, but.
But also kind of outperformed through the year and then in the fourth quarter, it's down sequentially.
Speaker Change: I guess.
Speaker Change: Is the noncash piece higher or can you just give me those numbers for Q versus <unk> or is there anything else abnormal whether it's a cost or mix in that fourth quarter margin and then if you could speak to.
Speaker Change: Where do you think those margins can go next year that'd be helpful.
Speaker Change: No. Let me this is Carlos let me take a stab at that so.
Speaker Change: Youre digging deeper in my brain here. So we're down about 20 bps Q3 to Q4 I'd almost consider that a little noise. There is a little bit more amortization.
Speaker Change: In the fourth quarter this year than last year, which probably contributed to that that blip there isn't a lot of.
Speaker Change: Theres not a lot of noise in either quarter for unusual things like at <unk>.
Speaker Change: I will tell you that.
Speaker Change: <unk> been pretty open and vocal that my expectation on the SSG is that the margins go between 22 and 23%.
And that's what we've done in <unk>.
Speaker Change: Basically 22, and a half for the year, so pretty much did what I thought it would do and I think that as we move forward.
Speaker Change: The things that I can count on other than mix shifts or something like that would be some incremental gains in that margin due to leverage on our on our costs. One thing. The SSG is has done very well.
Speaker Change: As the revenue base has grown they've done that without in a very efficient manner. The SG&A spend has been has been down as a percent of revenue consistently all year I expect that trend to continue and that's really where we're going to eke out these little incremental margin gains again absent any big shift in mix, that's what my ex.
Speaker Change: Spectation are going into next year.
Speaker Change: Yes, Carlos I guess.
Speaker Change: It makes sense in a way that you referenced that range over time, but there.
Carlos Macau: There is no I guess that makes it sound like you expect it to be kind of flat over time, but I would think that you would have I mean, historically you've had a pretty consistent.
Carlos Macau: 30% incremental margin in that business as Youre able to you know when youre in an environment, where youre growing revenue double digits or even mid to high single.
Speaker Change: Not growing cost as quickly as you are growing right now.
Speaker Change: That's absolutely correct and I don't know I don't think theyre going to be flat and I hope I didn't I didn't mean to insinuate that what I, what I am insinuating as that I expect margin improvement, it's going to be if you look back historically pre COVID-19 over the decade prior to that our margins were growing 2030 bps a year and it was based on volume growth.
Speaker Change: The business as we grow to your point, we're not the cost base isn't growing as fast as revenues I expect that to continue and absent any big swings in mix.
Speaker Change: That should be the cadence that we see moving forward.
Speaker Change: Okay, great that makes a lot of sense.
Speaker Change: Then.
Speaker Change: Wanted to ask you about the other industries outside of the defense space Aero within BTG.
Speaker Change: I think that down in the quarter.
Speaker Change:
Speaker Change: That being the fifth quarter in a row, where it's down so it was the first quarter, where you were lapping the.
The easier compare.
Speaker Change: But it's down again, so I guess.
Speaker Change: Can you talk about what's behind that and then what it would take to get that piece to stabilize and start to grow again.
Victor Noah: Yes. This is Victor Noah so.
Victor Noah: It's not necessarily a one year.
Victor Noah: Went to wash out the over ordering which took place over I think.
Victor Noah: A longer period of time, it probably took place over two two and a half years.
Victor Noah: But.
Victor Noah: As I said in the comments my general sense is that we start that that reverses starts to reverse.
Victor Noah: Sometime in the first half of our year.
Victor Noah: And.
We see signs of that in a number of businesses, where basically it looks like the order rate has started to turn up in some instances in others, it's kind of bouncing along the bottom.
And sometimes we get an occasional positive surprise, we end the month doing better than we expected in both sales and orders in a couple of cases recently and just our experience has been when this happens that some time in the neighborhood of half a year later it could be a little more it could be.
Victor Noah: A little less but somewhere in that neighborhood.
Victor Noah: It starts to show up with rising sales sequentially.
Victor Noah: <unk>.
Victor Noah: So I would expect that that would play out like it typically does.
Victor Noah: Barring of course, any unforeseen events, but.
Victor Noah: But thats, what I would expect.
Victor Noah: Okay. That's helpful. Victor I appreciate it just one last one quick one.
Speaker Change: Corporate in the quarter is fair.
Speaker Change: Fairly high compared to where it had been running.
Speaker Change: You guys don't strike me as big corporate expense guys.
Speaker Change: Was there something abnormal in that or how should we think about the run rate moving forward.
Speaker Change: No I think we typically run about one 5% of sales or something like that in corporate expenses.
Speaker Change: As you can imagine over the last four years, we've had tremendous inflation things like insurance and benefits and all those things rise. We also have a little noise with FX as the.
Speaker Change: As the dollar weakened we had we had some FX challenges, but nothing nothing no extra ordinary I mean, I think the trend going forward. We should continue to be 141, 5% of sales in that as the company grows. We we don't we don't have lavish expenditures, but we do need arms and legs to keep track of everything.
Speaker Change: So thats thats, principally the Zip code.
Speaker Change: We'll run in.
Speaker Change: Okay.
Speaker Change: Got it great. Thank you so much.
Speaker Change: Youre welcome.
Speaker Change: We will take our next question from Michael formally with truly securities.
Speaker Change: Hey, good morning, guys. Thanks for taking my question happy holidays here.
Eric Mendelson: Eric just I.
Speaker Change: I mean.
Speaker Change: We've talked a lot about SSG and <unk>.
Speaker Change: Trajectory.
Speaker Change: But I guess just looking at the sequential growth one of the lowest sequential growth rates that we've seen in several quarters was there anything.
Unusual in this quarter versus last quarter, I mean, it sounds like.
All business lines, all capabilities are running at record levels.
Speaker Change: Any notable changes or behavioral changes from customers that maybe.
Speaker Change: That sequential SSG revenue down a bit.
Speaker Change: Yes.
Speaker Change: Full of things number one I should state that one of the metrics that we never look at HEICO in any of the businesses is sequential growth rate because things can move around they can bounce around the neck in exaggerated the number that we always look at is.
Speaker Change: The annual growth rates are compared to what we've done in the prior year.
Speaker Change: And when I look at our SSG organic growth I mean, basically it was approximately in the first quarter, 12% second quarter, 12% third quarter, 15% in fourth quarter at 12% I mean as far as I'm concerned that's out of the park that is phenomenal and is.
Speaker Change: So far above what anybody else does in the industry with regard to organic growth, So I'm super happy with it and.
We just don't look at and compare one quarter to the next.
Speaker Change: Didn't get overly excited when between basically the second quarter to the third quarter, we had a big sequential growth I mean that can be due to various deals are.
Perfect.
Speaker Change: What's more important is that comparison to the annual and we think that that is that is incredibly strong and sometimes these moves.
Speaker Change: The numbers move in various jumped so it's really dangerous to look at it.
Speaker Change: In a sequential basis like that.
Speaker Change: Got it no that's helpful and then just one.
Speaker Change: One other housekeeping one for Eric.
Speaker Change: Sorry for Victor Victor did you give the.
Speaker Change: <unk> organic growth rate for the quarter at the consolidated level.
Speaker Change: Yeah.
Speaker Change: We are pretty sure we provide that.
Speaker Change: Atg I can do at <unk> was down low single digits as like approximate three 4% down for the quarter organically, Okay and contributing to that was what we talked about earlier, the other electronics and defense offset by space Thats pretty much what happened I think.
Speaker Change: In total for the quarter were up 3% acquired growth in there, but the organic side was down roughly 4%.
Speaker Change: Got it perfect. Thanks, guys I'll jump back.
Speaker Change: Thank you thanks.
Speaker Change: We will take our next question from Pete Skibinski with Alembic Global.
Pete Skibinski: Hey, good morning, guys.
Speaker Change: Good morning, Pete.
Speaker Change: Just a couple of quick ones maybe for Carlos.
Speaker Change: Carlos just because DNA is a pretty big add back for you guys and cash flow.
Speaker Change: Expectation for DNA for 25.
Speaker Change #100: And then also just wondering sort of post Covid post Wang Florida.
Speaker Change #100: Working capital, especially inventory has been larger I'm just wondering if that was kind of a short term thing or if we should expect a greater build in inventory going forward. Thanks.
Speaker Change #101: Sure so.
Speaker Change #101: Actually I think our DNA I expect it to be.
Speaker Change #101: Very similar next year to this year.
Speaker Change #101: Depending on how many acquisitions, we do next year it could flex up on the <unk> side, but as a percentage I expect it to be roughly the same as it was this year.
Speaker Change #101: As far as working capital needs you know its interesting we came into this year with a lot of commitments on.
Speaker Change #101: On products that are guys purchase multiple years ago because of some of the supply chain challenges, we had and we took delivery on that stuff towards the end of last year beginning of the issue and we talked a little bit about how that would probably skew our annual inventory being a little higher than what we normally expect as far as <unk> goes I do.
Speaker Change #101: Do expect.
And that to moderate a tad as we get into 2005.
There is a lot of us firm commitments, we had made on inventory coming out of Covid, where some of these deals have two year lead times and we had to commit two years in advance.
Speaker Change #101: Out of that stuff, we sort of took our last deliveries on as we got into the beginning of this fiscal year. So we should see a little bit of a calm down in inventory.
Speaker Change #101: As we grow the business organically, we've got to support it with more inventory spend.
Speaker Change #101: But I don't know that the slope of that spend will be as high as it had been the prior few years, our receivable management and Packable.
Speaker Change #102: We have.
Speaker Change #102: We had very little consumption.
Speaker Change #102: Working capital for receivables, which given our growth is amazing and so I think our guys and we as a management team are highly focused on working capital and.
Speaker Change #102: Going forward I expect we're going to probably returned to more consumption of working capital like you've seen historically versus over the last two or three years.
Speaker Change #103: Great. Thanks for the color.
Speaker Change #102: Yes.
Our next question comes from David Strauss with Barclays.
Speaker Change #104: Thanks, Good morning.
Speaker Change #105: Good morning, David.
Speaker Change #105: Wanda wanted to follow up I think there was another question so.
Speaker Change #105: <unk> seen margin.
Speaker Change #105: Either for Carlos or Eric in terms of I think Eric you gave some relative growth parameters around the individual.
Speaker Change #105: Kind of sub segments between parts repair and especially in products. How do you see that those relative growth rates within there influencing the.
Speaker Change #105: The margin for SSG in 'twenty five.
I think it would help it.
Speaker Change #105: So.
Speaker Change #105: <unk>.
Speaker Change #105: I think it all help it.
Speaker Change #105: The FSD margin story has been I think one of the least reported and yet most important things that frankly happen to this company I mean, when we look at what our operating margin basically from roughly 2015 to 2019 was in.
Speaker Change #105: The 18% to 19% area now the operating margin is up in the 'twenty two 'twenty, 3% area. So we've gone up about 500 basis points over that period of time after making a number of lower margin acquisitions.
Speaker Change #105: And going through Covid and all the turmoil that happened there. So I think the HEICO and the hydro businesses are exceptionally good at just continuing to ring efficiencies out of their operations year by year, we don't make a thing over it but they just increase.
Speaker Change #105: The amount of volume they focus on efficiency they get the costs down we don't have we don't have programs here at the corporate office like <unk>, 25, or <unk>, 26, or 27% or something like that but instead, we just work with them and they do this as a matter of course, and we just continually grow.
And higher on the operating margin, so I think that that.
There is no change from our perspective, and what we want to continue to do obviously bounces around year over year and depends on various investments that we have to make but I would anticipate the operating margins to continue heading north while still providing huge.
Speaker Change #105: Cost savings and benefits to our customers.
And doing that not be a price, but via cost and volume to what you were alluding to.
Speaker Change #107: Okay terrific and I.
Speaker Change #108: I don't think I don't think you specifically said on an <unk>, but would you expect <unk> to grow revenue organically next year in 'twenty five and is it if so.
Speaker Change #108: Is it more low single digit or mid single digits.
Victor Noah: Sure. This is Victor so we expect and are budgeting for growth in the ETE gene next year organically.
Victor Noah: I think we're being careful in putting it in the lower single digits range.
Victor Noah: Organically with acquisitions, hopefully more than that.
Victor Noah: And we've got some great acquisitions in the pipeline as well.
Victor Noah: Look I don't know, where we'll wind up to be clear I mean, we're all we're only we've only finished one month of the new fiscal year, but it's my belief based on talking to our companies and hearing from them that the ones who felt that they came up a little short this year are being very conservative in there.
Victor Noah: Projection for next year, some people call that sandbagging, I am not going to say that.
Victor Noah: Use them because I think it's good that our companies are conservative and they plan to spend money.
Victor Noah: According to what they think they're going to see on the revenue side.
Victor Noah: But.
Victor Noah: As I sit here at this moment.
I'm hopeful that we'll do better than our internal budgets, but we will see and I don't want to commit to that at this point and of course, just to point out that as it always has been throughout our existence in the atg it will be lumpy throughout the year and we're going to have bigger quarters than others. Some maybe.
Victor Noah: And in fact, the budgets have that sum up much more than others.
Victor Noah: And that is based upon what their expected production rates are as a result of many factors, including when the customer wants the product shipped in a variety of other factors, but I would expect that to continue in multiple ways by the way not just in sales and income, but as well as by end market, which we've seen his.
Victor Noah: <unk>.
Speaker Change #109: Fair enough. Thanks, thanks, very much and happy holidays.
Speaker Change #110: Thank you.
Speaker Change #110: Okay.
Speaker Change #111: We will take our next question from Ron Epstein with Bank of America.
Speaker Change #112: Hey, good morning, guys.
Yeah, Yeah lots been asked but nobody really essence, when yet so what's your expectation for maybe the change in the M&A environment with the New administration.
Speaker Change #113: Well as you know we have been very strong.
Speaker Change #113: In the acquisitions area.
Speaker Change #113: We bought this this school year five different businesses.
Speaker Change #113: Our teams by the way are busier than they've ever been looking at a whole variety of deals in both segments all sizes.
Speaker Change #114: So for Heiko, it's been a strong market I would anticipate.
Speaker Change #114: Obviously people expect less scrutiny.
More pro business.
Speaker Change #114: Evaluation going forward, but I think for HEICO were very much a preferred buyer because we don't have the.
Speaker Change #114: We don't have some of the complications that other folks have so I think the regulatory environment improves.
Speaker Change #114: It will still remain very good for HEICO.
Speaker Change #114: Yes.
Speaker Change #114: I wanted to one of the things to point out of course is that we have always been as we said earlier in the call.
Speaker Change #115: Eight eight.
Sort of a price and.
Speaker Change #115: Value preferred supplier to our customers. We've all we've never pushed on the pricing button remember pushed unlike the monopoly buttons and things of that sort.
Speaker Change #115: And as a consequence, we've never had any issues to begin with.
Speaker Change #116: When regulatory approvals and of course, I think people generally expect as Eric said, the regulatory environment to be more favorable to.
Speaker Change #116: Two business into companies like ours.
Speaker Change #117: Got it got it and then.
Speaker Change #117: If I kind of keep pulling on the string a little bit.
Speaker Change #117: Yes.
Speaker Change #118: Your appetite for doing another another big one that you guys have gotten bigger and then maybe to what you can say.
Speaker Change #118: It's.
No secret that boeing's been shopping some stuff around.
Speaker Change #118: Is there anything there that you guys would be interested in.
Yeah, our appetite for acquisitions of all sizes, including larger ones.
Speaker Change #118: <unk> remains the same.
Speaker Change #118: We do larger deals we've done them when they make sense, we won't do them just for the sake of doing them or adding revenue, it's all to us about the bottom line.
Speaker Change #118: So.
Speaker Change #118: That appetite is the same as well as for smaller acquisitions, as you've seen including small bolt ons or fold in acquisitions for.
Speaker Change #118: For our companies.
Speaker Change #118: And the opportunities by the way are spread out across the board at historically, we've been an opportunistic buy are buying everything that makes sense to buy and nothing that that doesn't make sense to buy.
Speaker Change #119: I think Ron if you look at <unk>, which was our first our largest acquisition to date, it's been an absolute homerun. So I think we've proven to the market that we can execute and win and execute and.
Speaker Change #119: Similarly these businesses.
Speaker Change #119: And continue to generate the cash to basically get our leverage ratio back down. So we can reload and do more so I feel 100% confident in our ability to continue to do larger acquisitions.
Speaker Change #120: Okay, great. Thanks, guys.
Speaker Change #120: Thanks.
Speaker Change #120: Thank you.
Speaker Change #120: Okay.
Speaker Change #120: And the next question comes from Louis Raffetto with.
Speaker Change #120: Our research.
Speaker Change #121: Hey, good morning, guys.
Speaker Change #121: Good morning Louis.
Eric Mendelson: Eric just to make sure I'm levels sit here, so a 13% organic growth in aftermarket repair parts do you have MRO and specialty products for the quarter I know MRO had been a little bit lighter just it seemed like maybe that did accelerate in the fourth quarter.
Speaker Change #122: Yes so.
Speaker Change #122: MRO.
Speaker Change #122: Look <unk> is.
Speaker Change #122: About 11% in the fourth quarter and specialty products was 11%.
In the fourth quarter.
Speaker Change #123: Okay perfect. Thank you guys.
Youre welcome.
Speaker Change #124: And then maybe Carlos for you it looks like there was another small impairment and a contingency adjustment in the quarter just didnt know it looks like that actually may have negatively weighed don't know if that was an either or both segments are ran through corporate just any color there.
Carlos Macau: Yes, we had we had a small.
Speaker Change #125: Impairment to a trade name in the fourth quarter it was about $1 five.
Speaker Change #125: Just normal course of business stuff wrapping up the year not a big deal there and.
Speaker Change #125: I guess youre talking about our contingency adjusts contingent earn out adjustments Louis.
Yeah look if there was $1 billion again, both of those I think would be a negative to the earnings. So I think margins would have been sort of better expertise I'll call them sort of one timers or.
Speaker Change #126: And I have talked about the contingencies I know, it's like if it's a negative it's actually a positive long term. So just trying to get squared on where that may have been yeah. So okay. So the the trade name was in Atg.
Speaker Change #127: And the.
Speaker Change #127: Roughly net of $1 million increase in the contingent earn out liability was split pretty much evenly between the two segments and it's just relating to create.
Creating that liability to terminal value. It's just the normal noise that we have every quarter for the discounted liability getting creative to payout value nothing unusual there.
Speaker Change #128: Yes, no it makes sense, but again it might explain some of the questioning or look at the sequential step down on the SSG margins to go even a half million dollars I'm not sure what that works out too, but just was curious alright that rapidly for me. Thank you very much.
Speaker Change #128: Yes, just as a reminder, unless we have those adjustments every quarter because you can't I wish I could put the full earn out value on the balance sheet on day, one, but you have to fair value and then accreted up to payout value. So in every quarter, we're going to have a little noise like that in the fourth quarter was just normal there was nothing unusual about those adjustments.
Speaker Change #129: Thank you.
Keybanc.
At this time I will turn the conference back to Lawrence Mendelsohn for any additional or closing remarks.
Lawrence Mendelsohn: I would like to thank everybody on this call for their interest in HEICO.
Lawrence Mendelsohn: And we look forward to our next earnings call, which would be.
Lawrence Mendelsohn: For the first quarter of 2005.
Lawrence Mendelsohn: Personally I am very optimistic about the outlook for HEICO.
Lawrence Mendelsohn: See opportunity in acquisition and internal growth.
Lawrence Mendelsohn: I.
Lawrence Mendelsohn: I feel that the company is doing extremely well.
Lawrence Mendelsohn: And it will continue to do so so let US know if you have any other questions that we have and answered during this call.
Lawrence Mendelsohn: Otherwise, we stand ready to speak to you at the end of the first quarter 2012.
Speaker Change #131: Thank you very much.
Speaker Change #132: This concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change #132: [music].
Okay.
Speaker Change #132: [music].
Speaker Change #132: Okay.
Speaker Change #132: [music].