Q1 2025 HEICO Corp Earnings Call
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Thank you for watching.
Welcome to the Heiko Corporation First Quarter 2025 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. HICO's actual results may differ materially from those expressed in, or implied by, those forward-looking statements.
Factors that could cause such differences include the severity, magnitude, and duration of public health threats, such as the COVID-19 pandemic, HICO's liquidity, and the amount and timing of cash generation.
Lower commercial air travel, airline fleet changes, or airline purchasing decisions, which could cause lower demand for goods and services.
Product Specification Costs and Requirements, which could cause an increase to our cost 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 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.
Our ability to make acquisitions, including obtaining any applicable domestic and or foreign governmental approvals, and achieve operating synergies from acquired businesses.
and economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our costs and revenues.
Parties listening to this call are encouraged to review all of HICO's filings with the Securities and Exchange Commission, including but not limited to filings on Form 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 Mendelson, HICO's Chairman and Chief Executive Officer.
Thank you, Samara, and good morning to everyone on the call. We thank you for joining us and we welcome you to this HICO first quarter fiscal 25 earnings announcement teleconference. I'm Larry Mendelson, Chairman and CEO of HICO Corporation.
I'm joined here this morning by Eric Mendelson and Victor Mendelson, HICO's co-presidents, and Carlos Macal, our Executive Vice President and CFO.
I would like to personally thank HICO's incredible team members for their hard work, dedication, and commitment to excellence.
Their tireless efforts to exceed customer expectations and deliver outstanding results with unique efficiency are the driving force behind our remarkable success.
Your efforts and accomplishments continue to shape HICO's bright future.
We're very proud of our first quarter results, which reflect consolidated margin expansion, strong cash flows, and record net sales in both of our segments.
I remain very bullish on Heiko's ability to win new opportunities during fiscal 25.
As we look ahead to the remainder of fiscal 25, our team is filled with great optimism.
The current U.S. administration's pro-business agenda aligns well with our long-term goals, providing an environment for innovation, investment, and expansion.
with our strategic focus on key markets like defense.
space.
Heiko: and commercial aviation and the exceptional talent and drive of our team members, Heiko is uniquely positioned to capitalize on new opportunities and sustain our momentum across diverse industries.
Summarizing our first quarter fiscal 25 results.
Consolidated operating income and net sales
Heiko: in the first quarter of fiscal 25 represent record results for HICO.
Heiko: improving by 26% and 15% respectively as compared to the first quarter of fiscal 24.
Consolidated net income increased 46%.
Heiko: to a record $168 million or $1.20 per diluted share in the first quarter of fiscal 25.
Heiko: and that was up from 114.7 million or 82 cents per diluted share in the first quarter of fiscal 24.
The tax benefit in the first quarter of fiscal twenty-five
net of controlling and non-controlling interest
was $26.5 million or $0.19 per diluted share.
Heiko: And that was up from $13.3 million, or $0.10 per diluted share, in the first quarter of fiscal 24.
Heiko: Excluding the impact of this tax benefit in both periods, earnings per share increased $0.29 per diluted share, or 40% up.
Heiko: The Flight Support Group set all-time quarterly operating income and net sales records in the first quarter of fiscal 25, improving 22% and 15% respectively over the first quarter of fiscal 24.
The increases principally reflect strong 13% organic net sales growth.
Heiko: and the impact from our profitable fiscal 24 and 25 acquisitions.
Heiko: The electronic technologies group operating income and net sales improved 38% and 16% respectively over the first quarter of fiscal 24.
Heiko: Space and Aerospace Product Deliveries, and the positive impact from our fiscal 2024 and 2025 acquisitions.
Cash flow provided by operating activities increased 82%.
Heiko: to $203 million in the first quarter of fiscal 25, and that was up from $111.7 million in the first quarter of fiscal 24.
Heiko: We continue to forecast strong cash flow from operations for the entire fiscal 25.
Consolidated EBITDA increased 22%.
Heiko: to $273.9 million in the first quarter of fiscal 25. And that was up from $224.4 million in the first quarter of fiscal 24.
Heiko: Our net debt to EBITDA ratio was 2.08 times as of January 31, 2025, and that compared to 2.06 times as of October 31, 2024.
Heiko: Acquisition opportunities and M&A diligence efforts within both of our operating segments remain highly active, reflecting a robust pipeline of potential targets.
Heiko: We consistently seek complementary acquisitions that meet our strategic and financial goals.
Heiko: This is guided by a disciplined approach that we pursue acquisitions that make financial sense and are accretive to our earnings while enhancing long-term shareholder value.
Heiko: In January 25, we paid our regular semiannual cash dividend of 11 cents per share, which was our 93rd consecutive semiannual cash dividend since 1979.
Heiko: We were also very busy with acquisitions, having completed several key acquisitions in fiscal 25's first quarter.
Heiko: In November, our Excelia subsidiary acquired 70% of SVM Limited, a designer and manufacturer of high-performance electronic
Heiko: passive components and subsystems primarily serving the health care and industrial and markets.
In December, we secured an exclusive license
and purchased key assets from Honeywell International.
Heiko: in order to support the Boeing 777 Ames and the 737 NGP-8E-7 via product lines.
In January, we acquired a 90% interest in Millennium International.
Heiko: A business jet avionics repair company which complements HICO's growing avionics repair capabilities.
Heiko: All of these acquisitions were funded principally using proceeds from our revolving credit facility and cash provided by our operating activities.
Heiko: In addition, we expect each of these acquisitions to be accretive to our earnings within the year following the acquisition.
Speaker Change: At this time, I would like to introduce Eric Mendelson, co-president of HICO and president of HICO's flight support group, and he will discuss the first quarter results of the flight support group.
Eric, thank you very much.
Speaker Change: The flight support group's net sales increased 15% to a record $713.2 million in the first quarter of fiscal 25, up from $618.7 million in the first quarter of fiscal 24.
Speaker Change: The net sales increase in the first quarter of fiscal 25 reflects strong 13% organic growth in the impact from our profitable fiscal 24 and 25 acquisitions.
Speaker Change: The organic net sales growth mainly reflects increased demand for our aftermarket replacement parts and repair and overhaul parts and services.
Speaker Change: WENCOR continues to exceed our expectations, and this was an excellent acquisition for HICO.
Speaker Change: Our customers continue to find great value in our larger aftermarket product offerings.
Speaker Change: for their Aerospace Parts and Component Repair and Overhaul needs, which has translated into excellent growth opportunities and success for both our legacy businesses and our customers.
and Wincore.
We continue to operate Wincor as a stand-alone business operation.
Speaker Change: I have defined our strategy as cooperation, cash, capabilities, and consistency without consolidation.
Speaker Change: The results have proven this to be the absolutely correct strategy.
Speaker Change: As I've mentioned before, we continue to make good progress working together and serving our customers in a combined seamless fashion.
Speaker Change: Some examples of how we are working together include, one, utilization of all HEICL and WENCORP PMAs and DERs at all repair stations, two, commercial and defense aftermarket sales cooperation.
3. Wencore e-commerce platform lists all Heiko non-competitive PMAs
Speaker Change: or when court is utilizing Heiko's manufacturing base to quote and build many new products
5. Engineering and Regulatory Cooperation
Six, sharing our best in-class vendors.
and seven.
Speaker Change: Our back office synergies such as payroll, insurance, retirement benefit plans, cybersecurity, and export compliance that will help offset additional regulatory compliance costs such as SOX and our FAA ODA.
Speaker Change: Flight Support Group's defense sales continue to grow, presenting a strong opportunity, especially as the current U.S. presidential administration prioritizes defense in cost efficiency.
Speaker Change: As one example, we are making progress in setting the path to selling aircraft replacement parts to DOD agencies.
Speaker Change: building upon our efforts over the past two years and frankly the decade before.
Speaker Change: While we don't expect this to contribute meaningfully to our 2025 revenues, we are very excited about the significant savings the U.S. government taxpayers can reap from buying our parts, just as so many commercial airlines do around the world.
Speaker Change: For competitive reasons, I can't get into further detail on these efforts, but I can say that serious work is going into making this happen.
Speaker Change: Our Missile Defense Components business is experiencing significant growth as well, driven by increasing demand from the U.S. and its allies.
Speaker Change: With a substantial backlog of defense missile orders and ongoing shortages, we anticipate meaningful expansion from this firm pipeline, reinforcing our commitment to delivering cost-effective solutions without compromising quality.
Speaker Change: The flight support group's operating income increased 22% to a record $166.1 million in the first quarter of fiscal 25, up from $136.1 million in the first quarter of fiscal 24.
Speaker Change: The operating income increase principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth, and an improved gross profit margin.
The improved gross profit margin principally reflects
The previously mentioned higher aftermarket replacement parts net sales.
Speaker Change: The Flight Support Group's operating margin increased to 23.3% in the first quarter of Fiscal 25, up from 22% in the first quarter of Fiscal 24.
Speaker Change: The increased operating margin principally reflects the previously mentioned lower SG&A expenses as a percentage of net sales
an improved gross profit margin mainly reflecting efficiencies realized
from the previously mentioned net sales growth.
The FSG's cash margin
Speaker Change: before amortization, or what we refer to as EBITDA, was approximately 26%.
Speaker Change: Which has been consistently excellent and is a hundred and twenty basis points higher than the comparable light support group cash margin of twenty four point eight percent in the first quarter of fiscal twenty four
Speaker Change: I am very happy with the continued expansion of our cash margin and believe our efficient, decentralized operating structure has permitted us to expand these margins.
Speaker Change: as we simultaneously delight our customers with fair prices coupled with undisputed industry-leading quality and turnaround times.
Speaker Change: This is an incredible accomplishment which is truly unique in our industry.
Speaker Change: Now, I would like to introduce Victor Mendelson, co-president of HICO and president of HICO's Electronic Technologies Group, to discuss the first quarter results of the Electronic Technologies Group.
Victor Mendelson: Thank you, Eric. The Electronic Technologies Group's net sales increased 16% to $330.3 million in the first quarter of Fiscal 25, up from $285.9 million in the first quarter of Fiscal 24.
Victor Mendelson: The net sales increase reflects strong 11% organic net sales growth and the impact from our fiscal 24 and 25 acquisitions.
Victor Mendelson: The organic net sales growth mainly reflects increased deliveries of our defense, space, and aerospace products.
Victor Mendelson: Further, orders remain very strong with the ETG's backlog reaching the highest ever quarter end amount on order.
Victor Mendelson: Our non-aerospace and defense markets witnessed sequential order improvement in the first quarter, which we believe bodes well for a sales recovery in those markets later this year, as customers continue working off their excess inventory.
Victor Mendelson: The Electronic Technology Group's operating income increased 38% to $76.5 million in the first quarter of Fiscal 25, up from $55.3 million in the first quarter of Fiscal 24.
The Operating Income Increase
principally reflects the previously mentioned net sales growth.
Victor Mendelson: SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin.
Victor Mendelson: The improved gross profit margin principally reflects the previously mentioned favorable mix of increased space, defense, and aerospace products net sales.
Victor Mendelson: The Electronic Technology Group's operating margin improved to 23.1% in the first quarter fiscal 25, up from 19.3% in the first quarter fiscal 24.
Victor Mendelson: The improved operating margin principally reflects lower SG&A expenses as a percentage of net sales, mainly due to the previously mentioned efficiencies and the previously mentioned improved gross profit margin due to the favorable product mix.
Importantly, before acquisition related intangibles amortization expense.
Victor Mendelson: This, as you will recall, is how we judge our businesses, as it most closely correlates to cash. On a true operating basis, these are excellent cash margins, and we are very pleased with them.
I turn the call back over to Larry Mendelson.
Thank you, Victor.
As for the outlook
We look ahead to the remainder of fiscal 25
Victor Mendelson: and continue to anticipate net sales growth in both the FSG and ETG divisions primarily driven by strong organic growth supported by increased demand for most of our products.
Our priorities remain focused on providing excellent career opportunities.
for our team members while advancing new products and services.
Victor Mendelson: development, expanding market penetration, and maintaining our fiscal strength and flexibility, all with a commitment to delivering long-term value to our shareholders.
We believe the future is extremely bright.
for HICO.
balance of 25 is going to be very strong.
Speaker Change: or if you have some questions or comments now. But if your comments are not taken today, please call Carlos or me or Eric or Victor and we will be happy to give you the outlook.
Speaker Change: Keep in mind that ETG has the largest backlog in its history.
Speaker Change: Thank you very much. And we now open the floor for questions. Sumer, you can open the floor for questions.
Speaker Change: Thank you and if you would like to ask a question please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone please make sure your mute function is turned off to allow your signal to reach our equipment. Again press star 1 to ask a question.
Unidentified Operator: And our first question comes from Larry Zolo with CJS Securities.
Speaker Change: Yes, hi, good morning. Pete Lucas for Larry this morning. You guys covered a lot and I do appreciate that.
Speaker Change: I guess just starting with Flight Support Group, a very impressive mid-teen sales growth on top of mid-20s in the first quarter last year. You talked about the growth drivers being organic demand for aftermarket repair services.
Speaker Change: I guess maybe if you could just give us a little more color. Is that penetration of existing customers or expansion with newer customers? How should we think about that?
Speaker Change: Hi, this is Eric. I'd be happy to answer the question. So I think that most of the growth is coming from expansion with existing customers. We pretty much sell to everybody in the industry.
So it's just deeper market penetration.
about 12% organic growth last year.
Speaker Change: So, that really is, I think, an outstanding accomplishment and speaks to the increased market penetration and the fact that we're hanging on to this market, we're continuing to grow. Our customers want additional cost savings products and services and it's really taking hold very well.
Speaker Change: what keeps margins what looked to be kind of flat for the rest of the year.
Is that simply a question of mix?
It's funny you ask that. So we...
Speaker Change: And somebody, one of our investors commented to me that on the last call I said something about our, you know, while our people are phenomenal, they also tend to sandbag quite well.
Speaker Change: So they turn in their numbers, they turn in their budgets, and it really, I don't think it's sandbagging, I think it's truly what they think that they can accomplish. You know, mildly conservative.
Speaker Change: are able to develop the products, get the products in, get them sold, and we're able to perform and do much better. So...
Speaker Change: While I'm very happy with our roughly 26% EBITDA margin in the first quarter, I'm reluctant to, you know, predict anything higher. Now if you look at the trend and what happens...
Speaker Change: We continue to move up and, you know, we've gone on an EBITDA basis from, I don't know, roughly 18% to now 26% over the last approximately 10 years.
Speaker Change: and we've just gradually taken that up and I think that as a result of having a team that has been working together for a very long time, they understand each other, they trust each other, they like each other.
Speaker Change: and they're able, as a result, to make, if you will, make bets, take risks, that the results are going to be very good and everybody's going to do their job.
Speaker Change: While we are not in while we're not forecasting increasing margins I mean that has been our trend and our people are working very hard to make that happen
Extremely helpful. Thanks. I'll jump back in the queue
Thank you.
And our next question comes from Sheila Kayalu with Jeffreys
Good morning, guys, and great quarter.
Speaker Change: So I guess my first question just a little bit of fun here, you know margins are 23% in both segments for the first time so How do we think about?
Speaker Change: at the expansion from there. Eric, Victor, you both mentioned EBTA margins well above that in the 27% range. So how do we think about margin expansion for both segments from here and longer term, but near term, how price contributed to each segment?
Speaker Change: Hi Sheila, this is Victor. You know for the electronic technologies group I, as you've probably heard me say, I feel comfortable with that EBIT A range in in the 26 to 28 percent range, right, and hopefully 28, hopefully higher and the goal is higher, but I'd rather everybody be comfortable at this level and if we
Speaker Change: You know, we never forecasted, we never predicted that the margins would end up being where they are. Our style of HICO, as you know, you know, for following us and getting to know us over the last...
Speaker Change: decade or two, has been just to keep our heads down, work very hard, execute on the details. Everything is in the details and making sure that we minimize the obsolete inventory, that we make sure technically the parts are where they need to be, we understand the pricing, what makes our customers happy.
Speaker Change: And when you look at, you know, flight support group is not an OEM. We don't have typically proprietary products where we are the only.
Speaker Change: We go to sleep every night knowing that the vast majority, 90 plus percent of our product line is also offered by somebody else.
Speaker Change: Yet we're able to turn out this 26% even A, which we think is the most important.
Speaker Change: So, to be an independent business doing 27% EBITDA margins, I think is frankly phenomenal and honestly, I never thought that we would get here.
Speaker Change: So, having said that, our people are working really hard in order to continue to improve efficiency. This is not done through pricing, this is done through watching our costs.
Speaker Change: increasing our product line, absorbing more fixed overhead, so I think
Speaker Change: business, I think it shows the, if you will, the uniqueness of the franchise and the fact
Speaker Change: You know, most others in the space don't, in the independent space, don't operate at those type of margins. So, I'm nervous to predict that they're going to go higher, but I would say I'm optimistic and hopeful that they will.
Speaker Change: you know, any new product opportunities that you're seeing and thinking about in 25.
Speaker Change: Yes, so we're, you know, we continue to focus on broadening our product line, developing more parts. We're really very excited about the new acquisitions that we've had in flight support in the first quarter. One is the Honeywell AIMS and VIA product lines for, basically, which is the avionics brains.
Speaker Change: And then also I'm very excited about our Millennium International Acquisition. So this is really the leading...
BizJet
Speaker Change: avionics repair facility, I think independent facility in the world. You speak to the customers, there is nobody like Millennium.
Speaker Change: not even Heiko who's doing the stuff that Millennium is doing and we are just absolutely overjoyed that they are in Heiko family and we can offer our customers
Speaker Change: PMA and DER if that's what they want, or if they want OEM, we're happy to do that as well. So it's, you know, whatever the customer wants. So I think that speaks to the broadening, and I think there's going to be a lot more potential for us.
Speaker Change: in the BizJet space. We're very, very much focused there. People have asked us to get into it.
Speaker Change: and I'm very excited about it. But again, we just continue to broaden the capabilities. Ten years ago, nobody would have ever thought that HICO would control the aircraft information management system of the 737NG or the 777, and we coupled that with our 20,000 PMAs and, you know, whatever it is.
Speaker Change: nearly 10,000 DERs and it's a pretty broad offering which just continues to grow step-by-step every quarter.
Great, thank you.
Thanks.
Unidentified Operator: And our next question comes from Nola Poponok with Goldman Sachs.
Speaker Change: expanding profitability and creating value but but it is an industry with pricing power and then your some of your peers and companies in the OEM parts have had price increases well above
Speaker Change: the historical average recently in the inflationary window we've been in and so you had the strategic decision of do you just keep taking even more market share especially via PMA which which is which has attractive pricing or do you close that price gap?
Speaker Change: Or do you close, you know, do you do half and half and and I and you had talked about
Speaker Change: maybe leaning more into price than you had in the past just because that gap had opened. And so I was curious where you stood on that, how much of that was in the margin of this quarter. I think it's a really interesting, you know.
Speaker Change: question thank you you know it's a great great question Noah and we clearly have left a lot of money on the table
Speaker Change: We, you know, our philosophy always has been that we've got to cover our cost increases.
Speaker Change: and we exist because our customers need reasonable, you know, reasonable prices coupled with
Speaker Change: You know the shortest turn times in the highest quality and that's really what we've done So the answer is no we have not squeezed the orange in order to deliver these numbers
Speaker Change: We could, you know, frankly, I think our prices could be a lot higher.
Speaker Change: But we don't do that, and our prices have been, as you know, sort of the increases have been sort of low single digits.
Speaker Change: maybe the high high end of low single digits but really sufficient in order to cover our cost increases.
Speaker Change: We do have certain contracted customers where, as a result of fixed prices, for a longer period of time, there could be more substantial price increases, but if you look at it on an annualized basis.
Speaker Change: It's still that, you know, I would say low single digits up to the high end of the low single digits.
Speaker Change: So we have not, no, we've not pushed the pricing, we want to make sure that we're very fair. And I think, you know, when you look at the, I know Wall Street looks at organic growth, you know, they want to see the revenue, organic growth rate, and that seems to be the metric, and 13% is great.
Speaker Change: operating income increase of which let's just say 90% of that is or 80% of that is organic that's huge and we do that without
Speaker Change: you know, jacking prices inappropriately. So I think we have a good, a very, very good balance and that's why we have, if you will, a lot of gas in the tank and why people want to work with HICO.
Speaker Change: Okay great, I appreciate that Eric. And just one on ETG, the I guess the defense space and arrow
Speaker Change: segment of it up 11% in the quarter and that's been you know volatile and I think a watch item for people and it did that despite having a fairly tough compare. Victor, Carlos, can you just kind of talk about what you're seeing there how you expect that to trend through the rest of the year?
I'm.
Speaker Change: Carlos, do you want to? I could take a stab at that. So, Noah, we had tremendous growth in defense space and aerospace in Q1 and it doesn't feel to me
Speaker Change: space I see being very lumpy it was good this quarter it next quarter based on shipments it could be down it could be up we don't know yet and we still have
Speaker Change: What I would consider a little bit of a tailwind that's coming back in the other electronics area, which
Speaker Change: So the first quarter was pretty flattish, maybe just a tick down, and so we haven't seen the big recovery yet that we talked about in December, but I do expect as we get into our second quarter here that we should see some life, and then that'll be more tailwind. So I have some good expectations for the ETD this year.
Victor Mendelson: Yeah, and I'll add to that This is Victor You know on the other markets the non a and d markets we we're seeing orders Moving in the right direction not a bow wave not a huge
Victor Mendelson: but definitely moving in the right direction and, as I mentioned in my comments, improving a bit.
Victor Mendelson: sequentially in the quarter and so that I think bodes well there but as Carlos said continue to expect this volatility that's that's been our pattern over literally the decades.
Victor Mendelson: and sometimes we break out of that and people think we're at a different inflection point but we tend to look over the course of the year for the overall average.
Okay, great. Thanks so much.
Thank you.
And our next question comes from
Scott Mikes with Melius Research
Good morning.
Good morning.
Speaker Change: Larry, Victor, Eric, Carlos, quick question on leverage. You ended with leverage at 2.1x but you still deployed 255 million of capital for acquisitions in the quarter. Given how big the overall enterprise is and the amount of cash you're generating, is there any fundamental shift in how much leverage you want to operate the business with on a go-forward basis?
The answer is no.
Speaker Change: We are generally, the maximum leverage we use is three times EBITDA.
Speaker Change: And we promised the street that we would drop it to two times within one year, which we did. We like it at two times.
Speaker Change: But if we see in a very desirable acquisition, we can go to three times
Speaker Change: because we have such strong cash flow. I mean, our cash flow permits us to go from three times or three and a half times back to two times within, say, 12, 14 months.
Speaker Change: So, we want to take advantage of our ability to make an acquisition using cash because people like cash.
create strong cash flow itself.
Speaker Change: and that it will be a strong business. And so far, we have accomplished those objectives. So I think that, you know, we've used our capital in a very, very.
Speaker Change: careful way, and you've seen the results. When we made an acquisition of WENCOR, people said, oh my god, you know, you stretched it three times or so, and look at the results. So I think
Speaker Change: you're going to see more of the same. The one thing that I think Heiko is really good at is managing its capital.
Speaker Change: And we have shown that over the last 30 years, and I believe it will continue exactly the same.
Thank you. Thank you. Thank you.
Speaker Change: Okay and then switching over to supply chain, a lot of your peers have talked about seeing meaningful improvement in their supply chain. So I was wondering if you could provide color on how the suppliers are performing at both FSG and ETG and then are there any sort of metrics you can provide whether it's on time delivery or parts conforming to quality that are coming from your suppliers?
Victor Mendelson: This is Victor. I'll start with it. The supply chain issues we had experienced
a while ago have really improved.
Victor Mendelson: And we've talked about that on some prior calls. And I would call it more or less noise level now across the ETG. There's some businesses that are particularly affected still and others that are not. But to me, it feels
Victor Mendelson: Fairly normal in that regard. I don't have any specific metrics on that
Victor Mendelson: company wide. I can say that our past dues, if you will, the our past due and our backlog
Victor Mendelson: has dropped dramatically. I don't think it was terrible. I think though at one point
Victor Mendelson: As I recall, a couple years ago, we felt it was about $50 million or so in total, where we had things shifting out to the right, but it's dramatically less than that now, and I'd call it more in the normal range.
Victor Mendelson: you know nicely higher if all of our suppliers were able to deliver. There's been a just a massive
Victor Mendelson: You know, our suppliers have had a significant issue with regard to labor. I think that that's getting settled out now. The answer is yes, we do look at the on-time metrics.
You know by dollars by orders
Victor Mendelson: If you will a consolidated report which pulls all that together, but we do review it at each of the businesses So I would say getting better, but not great
Victor Mendelson: and then of course this most recent issue with SPS and you know the unfortunate fire that they had is obviously going to further constrain the industry and what we'll have to see I think that's going to
impact a lot of participants in the industry.
Thanks for taking the questions.
Thank you.
And our next question comes from Jan Engelbrek with Baird.
Victor Mendelson: Good morning, Larry, Eric, Victor, and Carlos. I'm on for Peter Arment this morning. Thanks for taking the time on the questions and congrats on a really strong quarter. Victor, maybe a question for you on DOJ and just defense. Just given the constant news flow we're seeing tied to DOJ and they're currently reviewing Pentagon contracts.
Victor Mendelson: Could you just provide your updated view on ICOS positioning within defense markets?
Speaker Change: Just given the value-based approach that you follow and obviously this aligns really well with the current administration's goals and
Speaker Change: Is there any particular areas maybe within sort of supporting legacy or airborne fleets or defense electronics with radar and missile defense platforms that you see as a really strong area to target?
Speaker Change: So, I think there's some very nice opportunity for us in there, and to be clear, I believe, we believe there will be winners and losers in this.
Speaker Change: hasn't shaken out yet as to what will win and what will lose. So we can't say with certainty what we'll experience. But as you pointed out, our focus has always been on cost saving.
They could do otherwise.
And so that continues to be the case.
Speaker Change: I think the things that we're excited about in particular are some of the missile defense programs. We have some very good content on those.
Some of the newer space-based programs
Speaker Change: where I think we can offer some really great solutions there in the ETG, as well as that basic blocking and tackling that I talked about. And again, we've always, as Eric mentioned, with our
PMA Parts Business
Speaker Change: great value to the customer so they're not looking to go somewhere else or figure out how to go somewhere else so I think it is definitely in yours to our benefit all the time but especially at a moment like this.
Speaker Change: For the flight support group, Eric may want to address that, but I do think there's some very nice revenue upside for us, not necessarily this year, but as we get a little further out on commercial parts, equivalent parts for military use.
Competitive reasons, we never get into specific customers nor products.
but obviously the spend is tremendous.
Speaker Change: And we all know that there's tremendous areas for improvement. Everybody acknowledges that.
Speaker Change: and I really need to, if you will, congratulate the administration on this focus because everybody has known this for a long time and frankly not much or anything has been done about it.
Speaker Change: and even everybody in the industry and all of the AIA members agree that there's you know tremendous opportunity for efficiency gains in terms of process.
Speaker Change: cost alternatives. So I think ICO is going to be very well positioned. You're familiar with our product line, whether it's parts, repairs, distribution, defense sustainment, specialty manufacturing. I think we are going to be in the sweet spot here.
Speaker Change: But a lot has to be done, and that'll take a little bit of time, but I think at least we're on our way.
Speaker Change: Perfect. Thanks, Eric and Victor. That's really helpful. Just a quick follow-up.
Speaker Change: Perhaps Eric back to your call is just some high-level thoughts on commercial aerospace, you know global travels and record levels, but the OEM bold rates are
Speaker Change: directionally moving higher, specifically at Boeing in 2025. If you just talk about for FSG, just the impact, if any, on medium-term margins, call it the next one to three years, as the industry makes shifts towards
aftermarket towards more of a OEM mix.
Speaker Change: Yeah, you know, that's been spoken about now for, you know, a couple of years.
Speaker Change: And yes, Boeing in particular has had more challenges, but if you look, I mean, Airbus has been delivering a lot of new aircraft.
Speaker Change: And if you look at the way the fleet is expanding and how people want to travel, you know, as incomes increase around the world, I...
Speaker Change: spent the first three days of this week reviewing our sales with all of our sales leaders in the various businesses and I can tell you they don't see any slowdown whatsoever.
Speaker Change: a reduction then fine we go ahead and handle it we've been through in the last 35 years so many you know phases of this industry but fundamentally you look at the
Speaker Change: age of the fleet out there and how, you know, you've got this
whatever it is, 20,000, 27,000 aircraft aging.
Speaker Change: one year per year. Yes, some of the older ones will come out, but the vast majority of them are going to continue to consume a lot of parts at higher price points.
Speaker Change: and I think HICO is very well positioned. If a customer wants OEM material, we've got it for them. If a customer wants alternative material, we've got it for them.
Speaker Change: than Seal Dynamics and Wincorn. I mean, they knock the ball out of the park continually, and they are able to grow their principal's business. Because, you know, once you're locked out of a particular program, you can't access it.
Speaker Change: and between Steel Dynamics and Wincor, they're tied in with all the airlines.
Speaker Change: and the principals come to them and we provide opportunity to be able to grow their business as a result of the connection with all of the other HYCO and Wincore PMA and repair opportunities, but we're able to deliver a product and a service that nobody else in the industry can bar none.
Speaker Change: So I'm quite optimistic that regardless of what happens with You know Boeing starting to deliver more aircraft that Heiko's got a lot of talents here
Great. Thanks for taking my questions.
Thank you.
Our next question comes from Tony Bancroft with Gabelli Funds.
Tony Bancroft: Thank you so much, gentlemen. Very well done, as always. Any update? I'm just interested in the...
Tony Bancroft: previous acquisition you made a little while ago on Honeywell and I apologize I got on late another call but on Honeywell's avionics businesses
Unidentified Operator: that you guys did. Any update with that? Is there any more, anything out there that you're interested in? Do you still like that area? Maybe just what your appetite is there.
Speaker Change: Yeah, we, Tony, great question. You know, Honeywell is a phenomenal company. They put out incredible products.
Speaker Change: and we're very happy to be partnered with them and now we have purchased three product lines from them in the last 18 months and I think it's worked out extraordinarily well because they are able to take their limited floor space and their limited number of team members and allocate them to higher value activities.
Speaker Change: and Heiko is a great partner when it comes to buying these product lines. We execute extremely well, we're very knowledgeable about the products and we are very well liked by the customers.
So...
Speaker Change: I think not only Honeywell, but many different manufacturers out there we've now purchased product lines from and we have really a very successful time-tested process where we're able to buy, whether it's from Northrop or Triumph or Honeywell or others that we don't even talk about.
Speaker Change: commercial aircraft and I think that there continues to be very good opportunity because we're known as a very reliable partner.
and then
Speaker Change: Thank you for that and then maybe you know, I guess maybe I haven't caught you talking about You know, obviously Berkshire acquired Acquired your shares just I want you know I think it's pretty obvious But just want to get your thoughts and let you let you explain why you think they they bought you Bought your company obviously to do
Speaker Change: New position for them and would ever be possible that they were just I mean, you know We want to buy your entire company you you guys have done so well and it sort of falls in line with You know essentially all their all their values just just want to get your thoughts on that
Speaker Change: Yes, so I mean we're obviously overjoyed that Berkshire has become an investor in Heiko and you know we think that definitely as you point out our cultures align and there's a lot of similarities in the business. We didn't, if you will, set out
Speaker Change: to sort of copy Berkshire's culture we just set out on on this path 35 years ago and it was a small 25 million dollar company to do what made sense.
Speaker Change: And what we saw was that by operating this decentralized model with incredible operators, you're able to produce phenomenal results. And, you know, Warren Buffett is the father and the genius behind, you know, originally behind that whole strategy. And he does it, obviously, in a significantly larger scale than we do it.
Speaker Change: So, we're very happy, you know, as far as your comment about Berkshire wanting to, or, you know, possibly buying Heiko. Heiko's not interested in, you know, in selling the business, we're
Speaker Change: I'm very happy with the continued growth. Berkshire has been absolutely phenomenal, a great shareholder, and frankly, we can learn a lot from them.
Speaker Change: So, I think Warren Buffett's got an incredible team and it's a very deep organization and we will continue to, I think, grow our relationship with them.
Speaker Change: Great job, gentlemen. Awesome to get on the wall of fame there. Well done.
Thank you.
Our next question comes from Scott Ducholle with Deutsche Bank.
Hey, good morning and great results.
Thank you. Good morning.
Speaker Change: And if not, is that a business you could ever see the company getting into, particularly given the recent events at PCC?
Speaker Change: Yeah, PCC, they operate a phenomenal business, you know, whether you look at their castings, their forging, their fasteners.
Speaker Change: You know, I think for HICO to get into business trying to compete with PCC would be foolish. You know, they have got it so ground in and they know exactly what they're doing and they're phenomenal.
Speaker Change: So look, you know, there could be little opportunity here and there, but no in the mainstream. I don't see us
Speaker Change: get into, you know, to try to do what PCC, what they do. You know, the whole fire thing is a very unfortunate thing, but that's an incredibly well-run company. And knowing.
Speaker Change: PCC and you know the way that we do I think that they will figure out very quickly how to get those products resourced, built elsewhere, to get their facility up and running. So I've got a lot of confidence they're going to come you know back online much quicker than anybody else would.
with this kind of problem.
Speaker Change: Okay, and then Eric, do you think PMA parts are fully penetrated in auxiliary power units at this point relative to where it can go or is there still meaningful opportunity there?
Speaker Change: And I'm focused less in terms of customer adoption and more in terms of whether you think the business has PMA'd all the SKUs that you think represent the opportunity on APUs, or if you think there's still more SKUs that the company can go after.
Speaker Change: you know I don't really you know it's our policy to not comment on particular particular products
Speaker Change: Honeywell does a great job on their APUs and they've got big market share that has not been historically a huge area for HICO.
Speaker Change: provided details just in order to be consistent with what we do with other products, I'd rather not comment, but it has not been a big part of our business.
Okay, thank you.
Thank you.
Our next question comes from David Strauss with Barclays.
Hi, good morning. This is Josh Korn on for David.
Speaker Change: You've done about $400 million in acquisitions over the last two quarters. Could you give us an idea of how much those deals add in annualized revenue? Thanks.
Speaker Change: This is Carlos. So the deals that we've done have all been
Speaker Change: They've not been individually materials so we don't really want to discuss the financial operations of each one of those deals to be consistent with the way we report them in our public filings.
Speaker Change: Okay, and then to follow up I think on an earlier question, could you talk about how you see the sustainability of each of the 15% organic parts growth and then the 11% organic MRO growth in the quarter? Thanks.
Speaker Change: I'm very happy with the growth that we've had. I mean, obviously we're gaining market share. We're doing very well. I've been reluctant to
Speaker Change: predict, you know, those numbers. The thing that we, as I mentioned earlier, that we really focus on is the earnings growth.
Speaker Change: because, you know, at the end of the day, revenue is honestly meaningless. It's all about the earnings because that's the money that we can reinvest in the business and continue to grow our inventories and our footprints and everything else.
Speaker Change: We get most of our orders in the month of shipment, so it becomes very difficult to, you know, go out on a ledge. Frankly, I think people are used to HICO performing.
Speaker Change: so that they know that at the end of the day, whatever the industry is going to do, Heiko is going to be right at the top of it.
Speaker Change: and we have a history for 35 years of doing that.
Speaker Change: So, I feel, you know, very strongly that there's a lot of tailwinds, we don't see a slowdown, but to predict specific numbers going forward, you know, really isn't what we do and just becomes very difficult because we're very, very quantified.
Speaker Change: and data-driven and, you know, to sort of make projections, you know, it becomes very difficult.
Okay, great. Thank you
Thank you.
The next question comes from Joel Santos with UBS.
Speaker Change: Hi guys, Joao Santos is speaking on behalf of Gavin Parsons from UBS. Thank you for taking my question.
Speaker Change: I know you guys already talked a bit about pricing, but in terms of pricing, are you able to share with us how much of your portfolio is on long-term agreements versus how much you can reprice annually?
Speaker Change: We can reprice, I would say, you know, if it's not annually within the next couple of years but, you know, there's a split there in terms of the long-term agreements and the repricing annually. You know, I don't have in front of me what that is and again because it's decentralized.
Speaker Change: They have to pull all that together from all of the operating subsidiaries But you know my guess is it's in roughly the 50-50 category something like that
Speaker Change: Great, and in terms of aftermarket, how should we think about the pricing power in the segment given the current supply chain and competitive dynamics?
Speaker Change: We think that frankly we're leaving a lot of money on the table. We're making our customers very happy. We started out very small. I mean I'm sure you know the history of the company but we started out very small and you know when in particular when you're small you have to treat people right in order to get business.
Speaker Change: and we've maintained that philosophy for 35 years. Now, having said that, we have to cover our cost increases.
and under no
Speaker Change: because they've had fixed pricing for a period of time, we've got to go ahead and do that. And we've been successful in doing that. But we stress to our customers that we don't take advantage of them price-wise. We only go for a minority market share on all the products that we do. So we think that there's a lot of value to these customers.
Speaker Change: So I think that there's a lot of pricing opportunity for us, but we have not taken advantage of it
Thank you very much and congrats on the quarter.
Thank you very much.
Unidentified Operator: Our next question comes from Ron Upsing with Bank of America.
Hey guys, good morning.
Mogmath
Speaker Change: So just a couple of quick questions, maybe following up on your commentary, Eric, about the fleet and the age of the 22,000 airplanes that each get a year older.
Speaker Change: Do you guys have an internal, you know, kind of guesstimate on when the average age of the fleet will actually start to come down? Because it seems like to me that that might not happen until like the early 20s. But I don't know if you guys agree with that or kind of how you think about that.
Speaker Change: Yeah, we probably wouldn't look at the average. So for us what we would look at is the number of aircraft in each of the age cohorts.
So we think that continues to increase.
Speaker Change: Newer aircraft, less attractive. But we think, you know, also if you look at the newer generation aircraft, they're very, very expensive to maintain. I mean, these aircraft are insane to maintain.
Speaker Change: So, you know, the cost per, you know, equivalent unit. So we think that the The tide is rising
Speaker Change: And our market share is so relatively small that we can also grow our market share and then frankly compound it with the acquisition. So you put all that together and the fact that they'll deliver more new aircraft doesn't concern me.
Speaker Change: Got it. Got it. Got it. Yeah, I mean it does seem like there's a really long runway there And sometimes I just want to make sure we're thinking about right and then another one you to follow up on a question Or a comment that you made around
Speaker Change: and the unfortunate fire at SPS. My understanding is that was a pretty darn big facility that made a lot of fasteners. How disruptive do you think it could potentially be, honestly, on the industry? And then I guess, how does that kind of blow back on you guys?
Speaker Change: Yeah, I think it's going to be quite disruptive. However, SDS is incredibly, you know, precision gas parts is incredibly well run.
Speaker Change: and if, you know, God forbid, anybody's going to have that kind of a problem, those guys are the ones who will figure it out, number one. Number two...
Speaker Change: You know, define what that's going to be. But there definitely is going to be an impact in the both OE as well as the aftermarket. I think everybody is going to be impacted. You know, I want to be careful not to get too far over my skis.
Speaker Change: compliments on what they can do. But our experience in working with them is those guys are really sharp and they're gonna move heaven and earth to get this resolved quickly.
Speaker Change: Got it. And then maybe one last one. How are you guys thinking about...
Tariffs
given how global supply chains are in commercial aero.
Speaker Change: I guess to a far lesser extent in defense, but in a commercial era, it's so global. How do you guys think about what it could mean, ultimately?
Speaker Change: I mean, Ron, this is Carlos. Most of our supply chain is focused in local markets, right? We have, you know, 100 subsidiaries and they're all dealing with vendors in local markets. So we're not purchasing big bulk in one central location. So our risk, if you would, is diffused.
and the cost of raw materials within our products.
When you
Speaker Change: When you peel it back, it's not a huge component of the overall cost. So we've done some back-of-the-envelope math. We think it could be anywhere from
Net net three to five percent increased our product cost
Speaker Change: assuming that there was a tariff on you know half the countries we do business with and I think if that was the case we'd have no problem passing it on to our customers so from our standpoint we're not terribly concerned with with the outcome of that.
Got it. All right, guys. Thank you very much.
Thank you.
Our next question comes from Gautam Khanna with TD Cowan.
Hey, thanks for extending the call and allowing the questions.
Guys, I was wondering, I was wondering on
Speaker Change: DOD PMA, do you have any sense for what the development timelines would be to get parts qualified and if the process would be much different from what you guys are doing?
encounter normally with the FAA and
together
Unknown caller.
Speaker Change: Yeah, I would say that there's going to be really, you know, continued work and development in that area. I'm reluctant to get into specifics because we don't want to tell our competitors what we are doing.
Speaker Change: and so therefore we really don't want to get into the details on what we're on you know what our strategy is but we do think that there's a very significant market
Speaker Change: and you know we'll have to see really how that how that develops but again we don't see that as you know that has not been a revenue contributor to date and we're not forecasting it in our 25 numbers
Unidentified Operator: Maybe more fundamentally, is there a process already in place and is there any PMA penetration on military products today?
So the government doesn't...
You know that they have their own approval process
Unidentified Operator: So, in general, just because somebody has a PMA doesn't mean that, you know, the government would use it. But the answer is yes. We sell a large amount to the government on various businesses that we're in, so we're pretty familiar with the government process and what it takes to get stuff done. You know, clearly this...
Unidentified Operator: focus on cost and readiness is going to be, I believe, very helpful for HICO.
Unidentified Operator: I know it's awkward because you guys don't want to discuss it, but I'm more curious about, obviously you guys sell a lot of defense products.
Unidentified Operator: to the government, but I was wondering if specifically are you, have you been selling PMA defense products, or are they, you know, OEM branded components via ETG and specialty products?
Speaker Change: No, we sell HEICO proprietary parts, yes, to the DOD. We sell parts.
Speaker Change: There are many examples of it, and yes, so we're not a stranger to it if that's what you're getting to.
Unidentified Operator: That's what I was wondering, if there's precedent for it already. It sounds like there is.
What do you think the...
What do you think the...
The constraint on broader adoption has been historically.
Unidentified Operator: I don't really want to speculate on it, but I think a large part of it probably was no one was concerned about cost.
Unidentified Operator: and you know now we're in a new world and we've got you know we have this massive budget deficit we've got to cut our costs we have to increase the defense output and I think that you know this is just a little hanging fruit
Gotcha.
Speaker Change: Cool. And then, Eric, I was curious, on WENCOR, you know, the aerospace integration, you mentioned a number of the initiatives you guys have...
The rust has been or do you feel like you're
Far along in that journey or is it early?
you know how I how much opera yeah
Speaker Change: I think we've done well. I mean look, we operate the businesses independently, but clearly, you know, when you put the two product lines together, you've got, you know, much more compelling savings.
Speaker Change: So I think we're early in the you know definitely in the first half
Speaker Change: I think that there is a lot more opportunity, a lot more opportunity out there. Look, I'm very happy with the progress that we've made to date, but I think our sales folks have a lot more potential out there, significantly.
Unidentified Operator: And last one, I'm sorry, Victor, on the defense demand strength, you mentioned some product areas.
Speaker Change: Maybe if you could just broaden it or is this pretty broad-based or is it you're seeing the demand strength in the missiles
specifically, and that's kind of disproportionate or...
I'm just curious how broad the demand is.
improvement is across the portfolio.
Speaker Change: You know it certainly varies by subsidiary and some have a greater uptake than others and some are actually negative. So on balance
Speaker Change: It works out to to how it's done. I would say it's pretty
Fortunately, it's been fairly broadly based for us on defense.
particularly in some of our larger lines.
Speaker Change: So we're excited about that and of course, you know, in addition to that
proven to be the correct thesis.
Speaker Change: And that's worked out extremely well. By the way, Excelli is doing very well for us. We are very happy with it.
It's been a very nice acquisition.
Speaker Change: and we are anticipating more growth and more interest there from our customers. So, overall feeling good about Defense. Again, with the caveats that I mentioned earlier, the caveats that I mentioned earlier, but overall it has the right feel for the moment. And again, one of those caveats being it will remain volatile by quarter. That will always be the case in my opinion.
Thanks a lot guys. Appreciate it.
Our next question comes from Lewis Riveto with Wolf Research.
Hey, good morning guys. Thanks for taking the question.
Warning.
Speaker Change: Hey Eric, maybe one for you. You said before that you guys offer OE parts if customers want more alternatives. I guess just to clarify that, are you selling like a PMA part and an OE part or is that more of an OE part and a DR repair or that sort of more not on the same product I guess?
to develop additional PMAs for them.
Speaker Change: So, an OE, let's just say that they got on the 737, but they didn't get on the A320 on the particular product that they make.
Speaker Change: So what we can do is go out to the A320 customers and through our PMA network, get those
Speaker Change: parts, get those customers to support the development of and commit to purchase those parts and then we can have the OE for whom we distribute manufacture those PMA parts.
Speaker Change: and that's been a very successful part of our strategy but then also separate from that I was talking about really referring to the repair business.
Speaker Change: that we're the largest independent component overhaul firm, I believe, in the world. Non-OEM, non-airline, non-government.
Speaker Change: and although we're a lot bigger than a lot of OEMs here at the government, but you know it's a very significant
Speaker Change: component repair business, and there we do what our customers want. If they want OE parts, then we use OE parts. If they want alternatives, PMA or DER, then we'll use those. It's
Speaker Change: really customer-driven on what they want. So in that case, we stock both the ICO PMA parts as well as the OE parts, and they make the decision.
Speaker Change: Great, thank you. Any way you can size how big distribution is within flight support just now with WENCOR a little less easy to tell?
Speaker Change: Yeah, no, we don't, you know, due to all the disaggregation rules, we don't get into that. So we do disaggregate into parts, repair, and specialty. You know, the repair business now, I'm looking at...
Speaker Change: Roughly what we did in the first quarter, I mean, it's over a $600 million business. So it's become quite a large enterprise.
Thank you, Carlos. Oops, sorry about that.
No, no, no, and then just looking at parts.
Speaker Change: For the first quarter, we did over $450 million in aftermarket replacement parts, so that's roughly $1.8 billion.
in sales. So that's a very significant business as well.
Speaker Change: Appreciate the color, Eric. Carlos, just a quick one for you. In the past you were able to sort of give us how you were thinking about the combined impact of taxes, minority interest expense. Didn't know if you're able to provide that for this year.
Carlos Macal: I think if you can assume for the next three quarters, we should run around 21, maybe a tick above or below, depending on what transpires. And I think the NCI rate for the year runs around 7, maybe a high 7.5% of pre-tax income.
Speaker Change: Similar metrics to what we've had in the past, but I think that's where we kind of fall out for the year.
Effective rate for the year should be somewhere between...
18 and 19% is what I'm estimating.
Great, I appreciate it. Thank you.
Thanks, Louis.
Unidentified Operator: And at this time I will turn the conference back to Lawrence Mendelson for any additional or closing remarks.
www.microsoft.com.ca
Unknown caller.
Thank you very much.
Speaker Change: to everybody on this call. We appreciate your interest, and we are available for any kind of conference that you may want to have in the future. So, thank you, and we will speak to you in the next second quarter.
Speaker Change: Thank you and this ends the conference. And this concludes today's call. Thank you for your participation. You may now disconnect.
Speaker Change: Dedicated to my family. For those of you that have, The lives I saved, And those of others, The kinds of people Who you think you love...