Q2 2025 HEICO Corp Earnings Call
Welcome to the HEICO Corporation second quarter 2025 financial results call. My name is Tamara and I will be your operator for today's call certain statements. In this conference call will constitute forward looking statements, which are subject to risks uncertainties and contingencies.
Heico's actual results may differ materially from those expressed in or implied by those forward looking statements factor.
Factors that could cause such differences include the severity magnitude and duration of public health threats, such as the COVID-19 pandemic.
Heico's liquidity and the amount and timing of cash generation lower commercial air travel airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services.
Product specification costs and requirements, which could cause an increase to our costs to complete contracts governmental and regulatory demands export policies and restrictions reductions in defense space or homeland security spending by U S and foreign customers or competition from existing.
And new competitors, which could reduce our sales 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.
Both domestic and foreign governmental approvals and achieve operating synergies from acquired businesses.
Customer credit risk interest foreign currency exchange and income tax rates and economic conditions, including the effects of inflation within and outside of the aviation defense space Medical telecommunications, and electronics industries, which could negatively impact our costs and revenues.
Parties listening to this call are encouraged to review all of Heico's filings with the Securities and Exchange Commission, including but not limited to filings on Form 10-K Form 10-Q and form 8-K.
We undertake no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise except to the extent required by applicable law.
Speaker Change: I now turn the call over to Victor Mendelson, Heico's co Chief Executive Officer.
Speaker Change: Thank you very much Tamara and good morning, and thank you all for joining us on the call today. We welcome you to Heico's second quarter fiscal 2025 earnings announcement teleconference. As you heard I am Victor Mendelson Heico's co Chief Executive Officer, and I'm joined here. This morning by Eric Mendelson Heico's <unk>.
Speaker Change: Co Chief Executive Officer, and Carlos Macau, Our executive Vice President and Chief Financial Officer.
Speaker Change: Before we get into the details and the discussion on our call today, we thought we would take a moment to remember some people who we lost recently.
Speaker Change: One is Tom or what many of you know Tom Irwin He was our senior executive Vice President He served as our CFO for about 30 years.
Speaker Change: It was a very important part.
Speaker Change: <unk> of our business for many years. So he was mostly retired.
Speaker Change: At this point he was still a very good friend to us and an advisor and suddenly we will Miss Tom was of course, a family man and.
Speaker Change: Wonderful husband father grandfather, and he's somebody who was really very instrumental in their earlier years as we were building at the company.
Speaker Change: The other person, we remember sadly as Rob Spingarn, Rob was a securities analyst with the number of firms over the years. He covered HEICO. We know he was a believer of course in the Haikou story. Many of US knew him personally he too was a family man father husband and.
Speaker Change: Just a really wonderful person and we all feel better for having known both of them are.
Speaker Change: We can also comment I think that we are guessing that they would be smiling on us today proud of the results, we're about to discuss and proud of the place to which HEICO is wrong.
Speaker Change: So as we get into it let's also think from the bottom of our Hearts all of Heico's outstanding team members for their devotion to our company and their continued focus on exceeding customer expectations.
Speaker Change: Our efforts contributed to another strong quarter, and we remain very optimistic about heico's future.
Speaker Change: We also thank the brave men and women, who observed who are currently serving in the United States Armed forces as well as those who serve who are or have served in allied armed forces, including HEICO team members customers vendors and family members.
Speaker Change: With Memorial day, just behind US, we pause to honor those who made the ultimate sacrifice and service to our country and there were alloys, we are deeply grateful for their courage commitment and the freedom they protect <unk>.
Speaker Change: I was proud of the role we play in supporting the United States and our allies defense needs.
Speaker Change: Needless to say, we are very pleased with our second quarter results, which continued to demonstrate our core business has strength and the positive impact of our recent acquisitions as we look ahead to the remainder of fiscal 'twenty five we are filled with deep optimism the current administration's anticipated.
Speaker Change: Pro business direction aligns well with our long term goals, providing a fertile environment for innovation investment and expansion with our key focus on markets like defense space in commercial aviation and our team members exceptional talent and drive HEICO is uniquely positioned to capitalize on new opportunities.
Speaker Change: And to sustain our momentum across diverse industries.
Speaker Change: In summarizing our second quarter fiscal 'twenty five record results.
Speaker Change: Note that consolidated operating income and net sales in the second quarter of fiscal 'twenty five.
Speaker Change: Were record results for HEICO, increasing by 19% and 15% respectively compared to the second quarter of fiscal 'twenty for the flight support group set all time quarterly operating income and net sales records in the second quarter of fiscal 'twenty, five improving 24% and 19%.
Speaker Change: Respectively over the second quarter of fiscal 'twenty for.
Speaker Change: The increases principally reflect strong 14% organic growth from increased demand across all of our product lines.
Speaker Change: And the impact from our profitable fiscal 'twenty, five and 24 acquisitions.
Speaker Change: The electronic technologies group's strong second quarter results reflected improved demand, where the majority of its products, including double digit organic net sales growth.
Speaker Change: Space and aerospace products.
Speaker Change: Consolidated net income increased 27% to $156 $8 million or $1 12 per diluted share in the second quarter of fiscal 'twenty five up from $123 $1 million or 88 cents per diluted share in the second quarter of fiscal 'twenty four.
Speaker Change: Cash flow provided by operating activities increased 45% to $204 $7 million in the second quarter of fiscal 25 up from $141 $1 million in the second quarter of fiscal 'twenty four consolidated EBITDA increased 18% to 290 <unk>.
Speaker Change: $7.7 million in the second quarter of fiscal 25 up from $252 $4 million in the second quarter of fiscal 'twenty four.
Speaker Change: Our net debt to EBITDA ratio improved to 186 times as of April 32025 down from 2.06 times as of October 31 2024.
Speaker Change: We continue to be very busy with acquisitions and we completed our fourth acquisition of fiscal 'twenty five in the second quarter.
Speaker Change: In April our electronic technologies group acquired 100% of Rosen Aviation a L. L C. A designer and manufacturer of inflight entertainment products, principally in cabin displays and control panels for the business and aviation markets. The purchase price was paid in cash using cash provided by operating activities.
Speaker Change: We expect the acquisition to be accretive to our earnings within the first year following the acquisition.
Speaker Change: Turn the call over to Eric Mendelson, Heico's co Chief Executive Officer, who will discuss the results of both our flight support Atlantic electronic technologies groups in greater detail. Thank you Victor and good morning to everyone.
Eric Mendelson: Now before I begin the F. S. G E T Z E. T. G segment reviews on behalf of all of our shareholders I'd like to thank all of Heico's incredible team members for achieving results that years ago, we could have only dreamed of ours.
Eric Mendelson: Our results were absolutely phenomenal and our team members literally hit the ball out of the park.
Eric Mendelson: Thank you for your well known energy and passion and thank you for your incredible effort dedication and friendship, which makes these results even more enjoyable.
Eric Mendelson: It's one thing for a small company to achieve numbers like this but it's quite another to do it quarter after quarter year after year decade after decade at our scale.
Eric Mendelson: Gratulation to everyone and.
Eric Mendelson: Now onto the flight support group.
Eric Mendelson: The flight support group's net sales increased 19% to a record $767 1 million in the second quarter of fiscal 'twenty five.
Eric Mendelson: From $647 2 million in the second quarter of fiscal 'twenty four.
Eric Mendelson: The net sales increase in the second quarter of fiscal 'twenty five reflects strong organic growth of 14% and the impact from our profitable fiscal 2025 and 2024 acquisitions.
Eric Mendelson: The organic net sales growth reflects increased demand across all of our product lines, including 16% organic growth in our aftermarket parts and distribution businesses.
Eric Mendelson: The Winco art and legacy HEICO operations continue to exceed our expectations and obviously this was an excellent combination.
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 core.
Eric Mendelson: We continue to operate when core as a standalone business operation and our strategy is cooperation cash capabilities and consistency without consolidation.
Eric Mendelson: The sales earnings and margins proved this strategy to be optimal.
Eric Mendelson: As I've mentioned before we continue to make good progress working together and serving our customers.
Eric Mendelson: 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 and defense aftermarket sales cooperation.
Eric Mendelson: Three when core E Commerce platform lists all HEICO noncompetitive PMA.
Eric Mendelson: Four when core utilizing heico's manufacturing base to quote and build many new products.
Eric Mendelson: <unk> engineering and regulatory cooperation.
Eric Mendelson: <unk> sharing best in class vendors.
Eric Mendelson: Seven back office synergies, such as payroll insurance retirement benefit plans cyber security and export compliance that will help offset additional regulatory compliance costs, such as socks, and our FAA O D E and.
Eric Mendelson: And finally, eight sharing various IP applications and strategies.
Eric Mendelson: The flight support group's organic defense net sales increased by 18% during the second quarter and continued to present, an excellent opportunity, especially as the current U S Presidential administration prioritizes defense and cost efficiency.
Eric Mendelson: HEICO is well positioned to support these efforts by providing lower cost alternative aircraft replacement parts, helping the government and taxpayers save money, while expanding our market reach.
Eric Mendelson: Our missile defense manufacturing business.
Eric Mendelson: Is experiencing significant growth.
Eric Mendelson: Given by increasing demand from the U S and its allies 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 with industry.
Eric Mendelson: Street best quality.
Eric Mendelson: The flight support group's operating income increased 24% to a record $185 million in the second quarter of fiscal 25 up from $148 9 million in the second quarter of fiscal 2004.
Eric Mendelson: The operating income increase prints.
Eric Mendelson: Principally reflects the previously mentioned net sales growth and an improved gross profit margin, partially offset by the impact from changes in the estimated fair value of accrued contingent consideration.
Eric Mendelson: The improved gross profit margin principally reflects the previously mentioned higher net sales within our repair and overhaul parts and services product line and higher net sales and a more favorable mix of defense products within our specialty products product line.
Eric Mendelson: The flight support group's operating margin improved to 24, 1% in the second quarter of fiscal 25 up from 23% in the second quarter of fiscal 'twenty four.
Eric Mendelson: The operating margin increase principally reflects the previously mentioned improved gross profit margin, partially offset by the impact from the previously mentioned changes in the estimated fair value of accrued contingent consideration.
Eric Mendelson: Given that acquisition related intangible amortization expense consumed approximately 290 basis points of our operating margin in the second quarter of fiscal 'twenty five the air.
Eric Mendelson: <unk> cash margin before amortization or EBIT, a as we call. It was approximately 27% which has been consistently excellent and is 110 basis points higher than the comparable FSD cash margin or EBITDA of 25.
Eric Mendelson: Five 9% in the second quarter of fiscal 'twenty four.
Eric Mendelson: I am very happy with the continued expansion of our cash margin and believe our efficient and decentralized operating structure has permitted us to expand these margins as we simultaneously delight, our customers with cost savings and lightning quick turnaround times.
Eric Mendelson: Now I will discuss the first quarter results of the electronic technologies group.
Eric Mendelson: The electronic technologies group's net sales increased 7% to $342 2 million in the second quarter of fiscal 'twenty five.
Eric Mendelson: Up from $319 3 million in the second quarter of fiscal 'twenty four.
Eric Mendelson: The net sales increase reflects organic growth of 4% and the impact from our fiscal 'twenty four and 'twenty five acquisition.
Eric Mendelson: The organic net sales growth is mainly attributable to increased demand for our space aerospace and other electronics products, partially offset by decreased demand for our medical and defense products.
Eric Mendelson: The <unk> defense net sales are expected to be robust during the second half of the fiscal year as we have significant backlogs and order volumes.
Eric Mendelson: The <unk> other electronics organic net sales increased mid single digits during the quarter following multiple quarters of lower demand due to inventory destocking at our customers for high end industrial components.
Eric Mendelson: While one quarter of growth is not typically considered a trend we are pleased with our order volumes and backlog in the business and are optimistic for the remainder of 2025.
Eric Mendelson: The electronic technologies group's operating income increased 3% to $77 9 million in the second quarter of fiscal 'twenty five.
Eric Mendelson: From $75 3 million in the second quarter of fiscal 'twenty before the.
Eric Mendelson: The operating income increase principally reflects the previously mentioned net sales growth and SG&A expense efficiencies realized from the net sales growth, partially offset by a lower gross profit margin.
Eric Mendelson: The lower gross profit margin principally reflects the decreased defense and medical products net sales, partially offset by the increased space product net sales.
Eric Mendelson: The electronic technologies groups operating margin was 22, 8% in the second quarter of fiscal 'twenty five as compared to 23, 6% in the second quarter of fiscal 2000 and for.
Eric Mendelson: The lower operating margin principally reflects the previously mentioned lower gross profit margin, partially offset by a decrease in SG&A expenses as a percentage of net sales mainly due to the previously mentioned efficiencies.
Eric Mendelson: Importantly, before acquisition related intangibles amortization expense, our operating margin was 26, 7% as intangibles amortization consumed about 390 basis points of our operating margin.
Eric Mendelson: This is how we judge our businesses is that most most closely correlates to cash on a true operating business.
Eric Mendelson: These excellent. These are excellent margins and we are very pleased with them.
Eric Mendelson: And now I will turn the call back to Victor Mendelson to discuss the outlook for 2025.
Eric Mendelson: Eric Thank you very much as we look ahead to the remainder of fiscal 'twenty five we remain confident in achieving net sales growth in both the flight support and electronic technologies groups, driven primarily by strong organic demand for most of our products. In addition, we aim to accelerate growth where our recently completed acquisitions.
Eric Mendelson: <unk>, while positioning ourselves to capitalize on future acquisition opportunities our disciplined financial strategy continues to focus on maximizing long term shareholder value through a balanced approach of strategic acquisitions and organic growth initiatives aimed at gaining market share while maintaining a.
Eric Mendelson: <unk> financial position and preserving flexibility as part of this strategy acquisition opportunities within both segments continue to be highly active supported by a strong pipeline of potential targets and we are committed to pursuing complementary acquisitions that align strategically and financially with our objectives.
Eric Mendelson: Added by our disciplined approach, we prioritize sharon's actions that are financially prudent accretive to earnings and enhance long term value for HEICO and for our shareholders.
Eric Mendelson: And with that.
Eric Mendelson: Those conclude that concludes our prepared remarks, and we turn the call over now to quest for questions that we ask the operator <unk>. Please.
Eric Mendelson: Read the names of each color and their affiliation please.
Eric Mendelson: Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Eric Mendelson: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
Speaker Change: And we will take our first question from Sheila.
Eric Mendelson: With.
Eric Mendelson: Jefferies.
Eric Mendelson: Yes.
Eric Mendelson: Good morning, guys and thank you for the time.
Eric Mendelson: Great quarter again.
Speaker Change: Hey, good morning, maybe Eric two for you if that's okay.
Speaker Change: The first on FSC grass and then what type of margins if that's okay. So.
Speaker Change: If you could provide some color on the 14%.
Speaker Change: Annick.
Speaker Change: And defense within specialty products.
Speaker Change: Parse up 16, how does the repair and overhaul business and any color you can provide on conversations with airlines.
Speaker Change: Yeah.
Speaker Change: Well.
Speaker Change: So I'll.
Speaker Change: I'll start out by saying, we're incredibly happy with the performance the.
Speaker Change: Parts and distribution up 16% I mean, we're incredibly happy organic up 16% incredibly happy with those numbers.
Speaker Change: But that actually only tells part of the story.
Speaker Change: That we measure the businesses is as you know based on operating income or EBITDA and the EBIT increase is even more significant than the organic growth rate of sales. So that really is what.
Speaker Change: Particularly encouraging for us and we think that we're on a great trend there right now.
Speaker Change: <unk>.
Speaker Change: Parts and distribution were up 16% organic growth component repair was up 11% in specialty products was up 9% for the for the quarter. So I think very strong performance across the board there and we anticipate continued strong performer.
Speaker Change: <unk> throughout the rest of the year.
Speaker Change: Maybe as it relates to the parts parts visibility that you have how long do you anticipate that growth to outperform yes. There are two sub segments and is that what we could attribute to the higher margin level to whether the 24% or 30% drop there.
Speaker Change: Is it being driven by the higher parts or.
Speaker Change: Essentially yes.
Carlos: Sheila This is Carlos let me take that one on.
Speaker Change: The growth in the parts business and the repair business actually last several quarters have been relatively comparable where we've seen a nice move in the gross margin has been added specialty products in particular as Eric mentioned in his prepared remarks.
Carlos: Defense business that.
Carlos: That has really become a very nice book of business for HEICO is doing extraordinarily well and they have a lot of backlog to continue that trend and that had a positive impact on the mix of particularly on the gross margin for the quarter, which seems which is attributable candidly to that to that lift in the margin.
Carlos: Great. Thank you so much.
Speaker Change: Okay.
Speaker Change: We will take our next question from Larry Solow with CJS Securities.
Speaker Change: Great. Thank you my best wishes to Tom and Rob family and also congrats on the succession moves Victor and Eric and our best wishes to Larry.
Speaker Change: I just want to follow up on the on the on the organic growth in the parts business.
Speaker Change: Obviously.
Speaker Change: I think this is on top of.
Speaker Change: Two or three years in a row, it's kind of mid teens growth.
Speaker Change: Is it clearly you're beating the market is just any update on just share gains.
Speaker Change: I know that's been a big driver and over the last several years are you continuing to see.
Speaker Change: These share gains and perhaps they are accelerating in this environment.
Speaker Change: Absolutely Larry Great question, and it's a matter of fact over the last couple of weeks I've met with our sales heads in various businesses of these companies and we are seeing accelerated market acceptance of our product accelerated market share.
Speaker Change: And we're very optimistic that we are gaining market share and believe that our customers really value.
Speaker Change: Significantly value the.
Speaker Change: The products that we've got out there if you look.
Speaker Change: Particularly excited that these numbers these organic growth numbers as well as organic growth earnings numbers come on top of.
Speaker Change: Huge numbers last year and the year before.
Speaker Change: We're well out of Covid and.
Speaker Change: It.
Speaker Change: It really shows in the in the performance here, where we can.
Speaker Change: Continue to come out with new products.
Speaker Change: Net.
Speaker Change: A new products and adjacent white spaces, all of our businesses are very aggressive.
Speaker Change: New product development and our customers.
Speaker Change: To be showing tremendous support in both the parts as well as the repair areas.
Speaker Change: Mhm and you mentioned I know that the specialty defense business very strong this quarter and it sounds like I know that businesses.
Speaker Change: Sometimes a little bit choppy, but it sounds like your visibility is good for the next several quarters I'm more curious just anything on the aftermarket and defense, obviously, just anecdotally I'm, probably too early with doors and all that stuff going on but just yeah.
Speaker Change: As you look out.
Speaker Change: Are you seeing more interest.
Speaker Change: Any color you can provide on that side of the business.
Speaker Change: Yes.
Speaker Change: People have asked a lot about those over the last six months and we've said that we think that this is going to be very good for HEICO and it's not going to be an immediate benefit, but it's going to be a longer term benefit there is a tremendous amount of money that the government can save and we.
Speaker Change: We think with that we're going to be very very well positioned to continue to take advantage of that our defense sales are doing very well.
Speaker Change: And.
Speaker Change: We continue to take market share in that space as well.
Speaker Change: No.
Speaker Change: Im very.
Speaker Change: Very optimistic in both the U S as well as the foreign international markets.
Speaker Change: Got a HEICO has a phenomenal business that focuses on the foreign markets by the name of Blue Aerospace.
Speaker Change: That became part of the HEICO family nearly 15 years ago, and Lou has got incredible relationships and reach across I don't know well over 30 countries around the world.
Speaker Change: <unk> is able to support Oems as well as other independents on selling their products into those.
Speaker Change: Militaries and as we see NATO continuing to increase their spending in other U S allies, increasing their spending I think blue is uniquely positioned to support not only the HEICO businesses that are selling into those markets, but also all of the many Oems that they support as well so.
Speaker Change: I think both those from a U S perspective, as well as international is going to be very strong for us.
Speaker Change: Got it and if I can just slip one more in just for Victor.
Speaker Change: Just maybe just a nuance in the quarter I know.
Speaker Change: It sounds like at least on the other electronics are finally, turning around and growing.
Speaker Change: Just on the defense piece I know your bookings have been really strong in the last I think going back couple of years.
Speaker Change: The little bit of a slower growth this quarter and sales was that just a tough comp or is that just a timing related thing.
Speaker Change: Larry think it's a very good question yet by the way, we do have a record backlog again.
Speaker Change: In in Atg.
Speaker Change: Fence backlog is quite healthy as well.
Speaker Change: And you're right. It was a tough comp over last year. I mean, we were we were essentially flat or down slightly in defense as small thing.
Speaker Change: But to me, it's close to flattish, but down slightly and of course with cost increase and so on and that has an impact on margins but.
Speaker Change: We had tough comps last year. It was 20 some odd percent.
Speaker Change: Organic growth last year in the same period, so I think in absolute terms.
Speaker Change: These are great results and we're very happy with them and I think the margins are right sort of in the range of where we've been telling people to expect.
Speaker Change: Got you great. Thank you I appreciate the color.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Tim Lugo with Morgan Stanley.
Tim Lugo: Hey, good morning, everyone.
Speaker Change: Good morning, Good morning, how are you.
Speaker Change: Yes can you hear us.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: I mean, the aftermarket strength just continues to surprise industry and you guys have done a really good job on managing that business, but I was wondering.
Speaker Change: Was there anything in particular in the quarter.
Speaker Change: That drove the.
Speaker Change: Above industry growth like was there did you introduce more PMA parts.
Speaker Change: As you get more engineering synergies with one core did you see some sort of customer pull forward in anticipation of tariffs what's driving that.
Speaker Change: A 16% organic growth that's just very strong.
Speaker Change: Great question, Kristine and meeting with our folks I can tell you that.
Speaker Change: Reviewed.
Speaker Change: Sales with particular to the aftermarket sales with all of our sales leaders over the last couple of weeks and I heard optimism out of them that I frankly have never heard to that extent in my history at HEICO.
Speaker Change: It's a combination of the cost saving opportunities for the airlines us having parts on the shelves.
Speaker Change: Customers.
Speaker Change: Agreeing that we can develop product at a more rapid pace than we have in the past.
Speaker Change: HEICO has grown now and as you know, it's a $33 billion market cap company and when we walk into an airline and we offer them. These products that we've been offering for the last 50 years. They are now buying them from a very different type of HEICO.
Speaker Change: And I think that gives them a tremendous amount of confidence.
Speaker Change: To accelerate the approval process on our parts and really combined the.
Speaker Change: Combined the repair offering that we've got with our parts I mean, HEICO as guide and it's really important to understand this we have 21 component repair station. It is the largest component independent component repair network in the world.
Speaker Change: And we are able in those kimono repair stations two combined the.
Speaker Change: Sale of OEM parts, if that's what our customer wants with HEICO parts.
Speaker Change: But other customers want.
Speaker Change: And they're able to achieve cost savings that they've never been able to see in the past combined with our as you know our extensive <unk> repairs that were well known for.
Speaker Change: And really offer something that is hasn't been in the market. So I think between all of the products that we've got in the.
Speaker Change: The repair business combined with the PMA combined with the turn times I mean, frankly, yes, there is still supply chain challenges, but when you decentralize. The operations. In these 21 units that are really what I referred to as category killers in each of their area and.
Speaker Change: They are able to focus on their turnaround times.
Speaker Change: They are really able to capture market share. So I think we've just got a very very good.
Speaker Change: <unk> of offerings combined with the financial strength financial strength and credibility of HEICO. So I think we're really sort of if you will hitting our stride.
Speaker Change: Forward too.
Speaker Change: <unk> continued performance and just watching these folks do great things.
Speaker Change: Great and if I could do a follow up question.
Speaker Change: Historically your customers I'm very pleased with your performance he offer pretty good pricing.
Speaker Change: But what we've seen in the industry is that the Oems continue to increase our aftermarket parts prices to the chagrin of a lot of the airline customers.
Speaker Change: Now the gap potentially in your pricing versus the OEM. Just grows as you guys have historically been more consistent with your pricing and now youre seeing those surcharges from the Oems.
Speaker Change: Yes in terms of your pricing strategy.
Speaker Change: Is there opportunity for you to increase your pricing a little bit more than history to go more in line with the Oems, but still providing that discount that your customers enjoy.
Speaker Change: In a word absolutely.
Heiko: Heiko frankly.
Speaker Change: Gives away money every day to our customers we are incredibly customer friendly and we are very very protective of our long term and loyal customers. We have explained to them that we've got to push through and pass through our price increases are.
Heiko: Cost increases and that would include tariffs or anything else, but we've been very very careful to not use this as a profit graph to raise prices indiscriminately, we remember I've been with the company 36 years and I remember going.
Heiko: To these airlines and getting them to believe in us when we were just a tiny bit over $15 million PMA company.
Heiko: To believe in us that we would take care of them if they took care of us.
Heiko: If they want to reward us with increased business. They want to remain loyal to US we are committed to not increasing our prices beyond our cost increases now if somebody is not.
Heiko: Long term customer or.
Heiko: Sort of wants to cherry pick various opportunities than what I said wouldn't necessarily apply just sort of leave it at that.
Heiko: But our and again most of our business is with our long term committed customers. I mean these are the folks who are counting on us.
Heiko: I don't think that there is an airline in the world that could operate its fleet without HEICO today.
Heiko: I mean, we are really well entrenched.
Heiko: But we wanted to make sure that we leave all those pricing opportunities out there and that they know the value that we create and they know we could increase price more than we do but we intentionally don't and we believe if you.
Heiko: Look <unk> been following HEICO for a long time, I think hydro shareholders have been very well served by us.
Heiko: Straining, our pricing ability and generating big opportunities. We go to sleep every night, knowing that our most of our products. We have a competitor we don't typically have monopolies on most of what we sell and that's what makes these margins even more satisfying.
Heiko: Because we're really focused on costs and focused on giving great savings to our customers and creating fair margins for our shareholders.
Heiko: <unk> continues to be our approach.
Heiko: Great. Thank you very much.
Speaker Change: Thanks Christine.
Heiko: Take our next question from Ken Herbert with RBC.
Heiko: Yeah.
Speaker Change: Yeah, Hi, good morning.
Heiko: Good morning, guys.
Speaker Change: Good morning, maybe Eric or Victor on <unk>, you've obviously with accelerated another an assessment significantly increased your European exposure.
Speaker Change: Just wondering.
Speaker Change: If you could talk about what you're seeing in Europe. Today are you seeing an uptick in opportunities maybe haven't seen some of the strength in defense spending there translate to bookings growth how should we think about your European exposure and growth within that within EDG.
Speaker Change: Ken This is Victor <unk> the answer is.
Speaker Change: If I did use one word or two words accelerating well.
Speaker Change: We have seen an increase in orders we have seen an increase in sales out of our particularly our European defense businesses.
Speaker Change: Backlogs growing.
Speaker Change: But more important than that design ins and design possibilities really marching ahead, even faster than that.
Speaker Change: So I think it bodes well certainly in the near term obviously with the orders we've seen but what I'm, particularly excited about is the mid and longer term for these businesses because I think it gives us some really great growth vectors.
Speaker Change: For for HEICO.
Speaker Change: Particularly again in Europe, and I'm very excited about that.
Speaker Change: You know obviously the leader in that for us would be excelling, but even U S business I mean, even a U S. Based business, we have a European desk and content that goes to U S primes and as the Europeans are spooling up they are continuing to buy from equipment from U S and U S. Prime.
Eric Mendelson: And I don't I don't think thats going away. So quickly either so I am very pleased with how we're setting ourselves up here and Ken. This is Eric I'll also just to add on what Victor said our approach to operate these decentralized businesses.
Eric Mendelson: In various regions is really important and that's why <unk> is so appreciated in the European market.
Eric Mendelson: In addition, we have another company or cost control, which is in the distribution business.
Eric Mendelson: Based in Duluth, and they are also very excited about the European defense market.
Eric Mendelson: So we continue to see a big focus I mean, when Europe looks to spend 5% of GDP on them.
Eric Mendelson: That's going to bode very well for the domestic European suppliers.
Eric Mendelson: I think we're well positioned on both the <unk> in particular, but also the SSG side in Europe.
Eric Mendelson: Oh, that's great. Thanks, and then maybe just just work for Carlos you've continued to build.
Eric Mendelson: Inventory levels and I can appreciate some of the inventory and stocking challenges in a couple of parts of the business, but how should we think Carlos about may be some working capital relief or inventory opportunity into the back half of fiscal 'twenty five 'twenty six and is there a good way we should think about the business level sets now sort of working capital as a percent of <unk>.
Eric Mendelson: Sales or working capital intensity.
Carlos: So that's a good question Ken so.
Carlos: The key drivers of working capital for us of receivables and inventory receivables. Our dsos have been flat. We're running we're running under 50 days Dsos 48, something like that and Thats been pretty consistent over the last multiple quarters, I think where we've seen a little bit of improvement is in our inventory turns.
Carlos: We're down about you know we're down to about.
Carlos: I don't know, 5% down on turns this quarter, which is good.
Carlos: I think that we will see as our revenue base continues to grow we should see.
Carlos: A little bit less investment in inventory, because I think going into the first half of the year, we do.
Carlos: We do a lot of strategic buyers, we do a lot of things that set us up for the year that is that bleeds off during the first half of the year, we see a little bit of a deceleration. If you would on spend in the back half, but that all depends on demand right now with backlog strong we could see a little bit more investment, but I don't think the rate of investment.
Carlos: Is going to be quite as high I'd, rather not give you a working capital.
Carlos: Number because.
Carlos: It fluctuates, but I don't think.
Carlos: I don't think we're heading in a direction of investment in working capital if anything I think it should be.
Carlos: That to maybe slightly down as we get into the back half of the year.
Speaker Change: Great, Thanks, and nice cash flow in the quarter and congratulations everybody.
Carlos: Thank you. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Scott Marquez with Melius research.
Speaker Change: Good morning, Scott morning, Scott.
Speaker Change: Maybe not.
Speaker Change: Scott Your line is open.
Speaker Change: We'll take the next question from Noah <unk> with Goldman Sachs.
Noah: Thank you Hey, guys good morning.
Noah: I Wonder if you could just comment on what youre expecting from Atg growths in the back half just it sounds like the order activity is better.
Noah: Flow from backlog to revenue is maybe a little faster and then just the year over year compares are quite easy looking at the back half of last year or so.
Noah: Should we expect EG G growth to accelerate the rate of growth to accelerate in the back half versus what you just reported.
Noah: I think Carlos I'm going on because I think I'll, let you take that because I guess rhythm handed me the hopper data yeah manager predictions.
Carlos: Its Carlos.
Carlos: From my standpoint.
Carlos: We've always said that we'd like to see that business continue its a loaded mid single digit grower organically I think as we go into the next two quarters. It feels to me based on our current internal numbers that it.
Carlos: Other quarters should look very similar to this quarter I don't think we're going to get the 11% organic <unk> growth. We had in Q1 was very happy with the 4% this quarter the dynamics.
Carlos: To have a little bit of a moving around in mix I think as we get into Q3 and four but I do expect that we should be in the mid to maybe high single digits absolute growth for this segment for the year and between three and four it will vacillate a little bit I think you see defense going to be strong the rest of the year the other.
Carlos: Electronics, which has been down should continue follow through.
Carlos: Space is always going to be lumpy, we've had some really stellar the first and second quarter. This year for space had been off the charts for us, but we don't.
Carlos: We've got enough history with that vertical that we know it's up it's down it's sideways, it's kind of a lumpy business, so and commercial aerospace and Atg has been really strong and I expect that to continue so at the moment.
Carlos: But it doesn't feel like a lot of impediments. The only business that I think is industry wide down as medical it's not down a lot for us and it's not a big part its not a big vertical within atg, but I do expect that as we get towards the back half of the year that that business should see some green shoots so that's kind of the setup right now Carla.
Carla: That's super helpful. I appreciate that.
Tim Lugo: Any incremental update on your defense PMA effort and when we could start to see that actually hit revenue.
Tim Lugo: Yes, it's a great question I mean, <unk> got a lot of things that they're working.
Carlos: Frankly, we're working this project well before dose and.
Carlos: But we think that there is still a lot.
Carlos: Lot of opportunity there.
Carlos: Things are.
Carlos: Very busy in Washington, right now as we all read.
Carlos: But we always said that this would not be 2025 story.
Carlos: It would it would come after and I think we still need to.
Carlos: Evaluate really where that is so I'd, rather not make a prediction now other than to say, we do think it will be meaningful.
Carlos: And we're working very hard at it but due to competitive reasons I'd rather sort of.
Carlos: Yes.
Carlos: Hold off for the moment on supply in details.
Carlos: Okay.
Carlos: And then just at SSG.
Carlos: You know the markets have been.
Carlos: Somewhat volatile the different opinions on the macro out there we've heard some softer commentary from airlines Thats, obviously been pretty U S centric.
Carlos: But you you accelerated the rate of growth in <unk> I guess, just temperature checking what you're hearing from airlines, it's a little hard to.
Carlos: Bifurcate the seat mile growth has decelerated, but aftermarket growth is not in.
Carlos: To what extent are the airlines actually doing much better than we here versus there was just a lot of pent up demand.
Carlos: But that's still flowing through because supply demand has been so tight.
Carlos: In the end market.
Carlos: Yeah.
Carlos: Great question Noah and.
Speaker Change: In reading the my own feeling is reading the newspapers and seeing what's going on in the win Liberation day happen tariffs came out there was a lot of concern.
Carlos: About travel.
Carlos: People cooked out I would say analysts and investors got very concerned about what that could mean.
Carlos: And there were some reductions in various travel numbers and forward bookings, but now if you look at it it's pretty strong and so I think that there is a fair amount of.
Carlos: Pent up travel demand if you look at travel as a percentage of GDP, it's still relatively small.
Carlos: If you're on slide you see how busy they are we know from the order demand in speaking with our customers that.
Carlos: It's sort of a very good setup for us because they are worried the customers are worried about the future. So the FERC focused on savings yet things are still very high.
Carlos: <unk>.
Carlos: From what we see the gas as you know the pedal is pretty much to the floor.
Carlos: And then on top of that you've got.
Carlos: Older assets out there, which we've always said that the newer equipment is far more expensive to maintain than the order equipment and I think anybody with an airplane absolutely knows that's the case and this stuff is crazy expensive.
Carlos: And that's why I think we may be in a little bit of a unique position because we're all about cost savings and they can go back if airlines wanted to do the old legacy way. They can do that or if they want to go create savings through PMA or repair in our <unk>.
Carlos: Efficient distribution, where we.
Carlos: Get to understand exactly what they need we can procure this stuff in advance offer very good pricing.
Carlos: I think we're just very well positioned with our decentralized approach.
Carlos: Two capturing market. So I think thats, probably why were.
Carlos: A bit more optimistic and I think turning in numbers that are.
Carlos: Frankly industry, leading especially when you strip out pricing I mean, we're not.
Carlos: Jamming it to our customers.
Carlos: And we were able to get these numbers so.
Carlos: Yeah.
Carlos: Super interesting I appreciate the time.
Carlos: Recognize your comments.
Speaker Change: But at the front end of the call that was nice of you to say.
Carlos: Thanks, a lot guys.
Speaker Change: And ACI stock.
Speaker Change: Yeah.
Ron Epstein: Next question comes from Ron Epstein with Bank of America.
George: Hey, Good morning. This is George your line is answer Ron.
Ron Epstein: Good morning morning.
Carlos: Okay.
Carlos: On the defense business.
Carlos: Appreciate you guys gave some color on how strong the missile defense segment is.
Carlos: Is there another part of that backlog that is growing as stronger seeing as much interest or you guys would expect wood in the coming quarters.
Carlos: Yeah, I mean, I would say the launch business has been has been very good.
Carlos: Launch drones, I think it's very actually Theres a lot of breadth in it it's not in every aspect of what we do in defense, which will always be the case, we're always going to have laggards and we're always going to have.
Carlos: Shiners so to speak.
Carlos: In the mix.
Carlos: But.
Carlos: Remember our strategy is to make components or sub components that go into larger assemblies.
Carlos: Those can be found on a broad array of systems and platforms. They could be on launch vehicles. Sometimes they are other times there on missiles other times its precision guided munitions targeting systems.
Carlos: Avionics and.
Carlos: That moves around so right now missile defense is probably the most common meeting point the confluence of all of those different products and Thats, probably where they're meeting most commonly whether it's the actual vehicle itself, where it's a radar.
Carlos: System, that's tied to it that allows it to operate.
Carlos: But missile defense, if I had to pick one that would be the.
Carlos: Stand out that would be it but the others are pretty strong too.
Carlos: They are growing at say theres yet.
Carlos: I'm not really complaining about any any segments that we're in right now.
Speaker Change: Got it thank you so much.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Peter Arment with Baird.
Speaker Change: Yes, good morning, Victor Eric Carlos and nice results.
Speaker Change: Okay.
Speaker Change: A lot of questions have been asked so maybe maybe if I am Victor and Eric could you give us maybe your updated thoughts on tariffs I think a couple of quarters back you've made.
Speaker Change: Some commentary about maybe a low single digit impact to your product costs, maybe what's the latest that you're seeing.
Speaker Change: Yes, and I will caveat it by saying the obvious.
Speaker Change: And obvious here nobody knows what's going to happen with tariffs I believe at this point.
Speaker Change: And we're all aware of the volatility on decision, making on tariffs with that said, we have been talking with our companies and surveying them regularly and now were thinking remains the same there's really no change in that.
Speaker Change: A high number of our companies think that tariffs will have some impact but some of those are positive where the businesses are producing only in the U S and they're serving in particular, the non A&D markets as a rule of thumb, we feel that the majority of tariffs.
Speaker Change: We will be something that our customers will accept it may not be there may be lag and timing on that right you have things under PEO.
Speaker Change: For which may be havent procured all the materials and you have fixed pricing on the sale and so on but again, we think fairly.
Speaker Change: Fairly immaterial on that.
Speaker Change: And we've gone through company by company and I don't think we have.
Speaker Change: Single company that has to obviously, even expect on their business a material impact. So that's our current thinking on <unk>.
Speaker Change: On tariffs.
Speaker Change: Got it that's helpful and just and then Eric You mentioned you gave some nice details on kind of the.
Ron Epstein: Collaboration efforts, that's going on between HEICO legacy if you will in linked quarter can you talk a little bit about maybe have you been able to increase like the the output in terms of number of PMA or is it still kind of on that same trajectory of what you want to add to the catalog on an annual basis.
Speaker Change: Yeah, I mean, we have been able to increase the number.
Speaker Change: But the most important thing for us is really to make sure that we increase the penetration so.
Speaker Change: I think that the number of PMA is makes sense.
Speaker Change: From a hydro and wind core perspective.
Speaker Change: And we've got to make sure that we can in fact procure and inspections for.
Speaker Change: Whatever we put out there so I think I'm very comfortable with the number where it is and we've been able to achieve these kinds of numbers with these.
Speaker Change: These kinds of results with that kind of new product development output. So I think it's very very well balanced.
Speaker Change: Got it Super helpful. Thanks.
Speaker Change: This results and thanks for the opening monologue comments I appreciate it thanks.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Pete Skibinski with Alembic Global.
Pete Skibinski: Hey, good morning, everyone.
Speaker Change: I just wanted to say hopefully he's listening, but congrats to Laurence.
Speaker Change: Long and successful and storied career as he moves into the next phase.
Speaker Change: So congrats there.
Speaker Change: And I'll try to maybe put.
Speaker Change: Carlos on the spot again.
Speaker Change: <unk> margin.
Speaker Change: I think what I heard Carlos is that specialty products had a good quarter, but then also the backlog there is really strong and it was positive for mix.
Speaker Change: I feel like I didn't hear a good reason why <unk> margins could potentially decline from here.
Speaker Change: Because like I should be inclined to keep them above 24% on an operating basis going forward unless unless you've got other reasons.
Speaker Change: Other factors.
Speaker Change: So I appreciate the question.
Speaker Change: We've consistently said is that the SSG.
Speaker Change: Optimal margin range is anywhere from 23 to 24 that was sort of our guideposts going into this fiscal year.
Speaker Change: Now we were.
Speaker Change: 10 basis points above the high end of that this quarter I don't know that I would read into that as saying margins are going north of that anytime soon but I do think will happen is I should stabilize in the high end of our range and I do think that as we move forward, we'll continue to get.
Speaker Change: Efficiencies, if you would on our fixed cost spending as the sales growth. We don't have a lot of capital investment. So we do get a lot of leverage on our fixed costs and I think we can continue to eke out on an annual basis.
Speaker Change: 130 bps, a year typical to what we had done historically over the past decade, that's how I would view it Pete if we have quarters, where it bounces up or bounces down I wouldn't get too Russell that that will always be reasons I do think that for the quarter. We had great mix in the SSG, we did have that nice tailwind.
Speaker Change: For some growth in the defense business that should continue but it's already in this margin. We've produced so I wouldn't I wouldn't at this moment extrapolate that too far in the future to quickly okay.
Speaker Change: Yeah, that's fair enough fair enough I appreciate the color and then just one last one for me.
Victor Mendelson: Maybe for Victor.
Speaker Change: On Atg defense.
Speaker Change: As we think about this reconciliation bill and what it could mean for U S defense spending.
Speaker Change: And I think theres different ways than maybe score the defense spending by year and whatnot, but if we get 10% plus type of defense spending growth. How do we think about that translating to EG atg defense sales growth.
Speaker Change: Look it's got to benefit us.
Speaker Change: I would say it all depends where the money is spent and how it's deployed when I look at the priorities of the government is talking about I think we're in a pretty light.
Speaker Change: I'd say the sweet spot for that.
Speaker Change: But I would be lying to you. If I told you I knew with certainty and I think as I said, it really is going to be contingent on.
Speaker Change: What they're spending on when they are buying and how they're laying out the funds, but I think if we have that 10%.
Speaker Change: Going to bode extremely well for us.
Speaker Change: Okay, great. Thank you guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Scott <unk> with Deutsche Bank.
Scott <unk>: Hey, good morning, Eric is growth at SSG broadly demand constraint or are there are many product lines that are supply constrained either in terms of your own suppliers or your own ability to ramp up capacity and fill demand just trying to better understand what the current limiter on our aftermarket growth. This thank you.
Speaker Change: Great question Scott.
Speaker Change: We are definitely a supply constraint.
Speaker Change: As a matter of fact I spoke to one of our group Presidents. This morning was lamenting.
Speaker Change: Difficulty getting product.
Speaker Change: There is still plenty of supply constraint, so I would say that.
Speaker Change: Robley.
Speaker Change: That's definitely the bigger area right now.
Speaker Change: And supply constraint in terms of getting material in the door from suppliers or your own ability to hire labor to then work that Oh, I'm, sorry, Yeah, I'm, sorry, I meant from outside suppliers.
Speaker Change: A very difficult continuing to be difficult to get product from suppliers. We have made a lot. Obviously you can see the numbers that we are doing quite well getting product in from suppliers.
Speaker Change: We've got other suppliers up and going and we're dual sourced on a bunch of stuff. So I feel that we are definitely overcoming a lot of this but.
Speaker Change: Definitely you know there is a there continues to be a shortage of supply in general in the industry.
Speaker Change: It is getting better but.
Speaker Change: We still exists out there.
Speaker Change: Okay.
Speaker Change: Can you give an update on the level of demand you're currently seeing in Asia for your product clients broad was looking for some sense of how the growth rate in that region is tracking.
Speaker Change: And also interested in update on how large Asia is as a percentage of SSG aftermarket sales at this point. Thank you.
Speaker Change: Don't have the breakdown in <unk>.
Speaker Change: Front of me in terms of Asia as a percentage, but I can tell you that we're doing quite well in Asia demand is very strong across all of our businesses.
Speaker Change: China, there was a little bit of pre buying.
Speaker Change: Before the tariff and then there were periods, where it was lower.
Speaker Change: I think things are coming back now.
Speaker Change: More.
Speaker Change: Stabilized right. So I mean, we continue to be very very bullish on Asia.
Speaker Change: Thank you.
Speaker Change: Tremendous market reach and penetration in that region.
Speaker Change: And we'll take our next question from Josh Sullivan with the benchmark company.
Josh Sullivan: Hey, good morning.
Speaker Change: Good morning, Josh.
Speaker Change: In the opening remarks, you mentioned your optimism around the pro business direction of the current administration. Just curious if you could just give us some highlights on practices youre seeing on the ground at this point to that end.
Speaker Change: Yes at this point, Josh I don't know that we're seeing any implementation so much as the announcement of plans right and executive orders coming out of the government.
Speaker Change: Reducing ordering reduced bureaucracy and things like that so our referenced there was a.
Speaker Change: A comment of forward optimism.
Speaker Change: And just what we have noticed historically has been that when we add the administrations that are very regulatory heavy.
Speaker Change: And have the anti business mentality that it slows things down it adds cost and when the inverse happens that is to say when we have administrations that believed in less.
Speaker Change: Government interference.
Speaker Change: <unk>.
Speaker Change: The velocity of business as well as the cost of doing the velocity increases in the cost of the business decrease so that's that's what we're referring to there I think that was a general sort of high level comment as opposed to one that we think we will be able to quantify at this point I think we'll have to look back in four years.
Speaker Change: Or as you heard through 12 or whatever the number is and and quantify that but also Josh secondary in going out to the businesses and talking to the folks on the ground. There is tremendous optimism now about expanding getting bigger facilities, adding equipment, adding people, adding capabilities and I think.
Speaker Change: Frankly, the administrative the new administration has gotten the animal spirits going and of course, the general support for space and defense is that obvious.
Speaker Change: But even in the commercial area, there's just tremendous enthusiasm and support and really to echo on what Victor spoke about I mean, when you get a regulatory heavy.
Speaker Change: Environment that just gets people down they have to spend a lot of time on if you will lower value added activities and when they feel that the the country in the world wants to expand and they want good positive things that are much more motivated much more interest.
Speaker Change: Simply motivated to deliver so.
Speaker Change: I think that.
Speaker Change: Broad wing, what we were what we were talking about.
Speaker Change: Got it and maybe you touched on it a bit there, but you're you're focus on missile defense manufacturing your position as a low cost manufacturer.
Speaker Change: Mentioned, there about expanding capacity potentially or at least the ability to do it in the world moves towards more of a need for mass volume of missile needs. How how are you looking at that position expanding capacity do you compete with some of these new defense Tech early stage players or are you more complementing what they are doing.
Speaker Change: I think if anything those would be potential customers because again, the strategy of being a component and sub component supplier.
Speaker Change: And in fact.
Speaker Change: Some of them are customers already and I would expect that to expand over time.
Speaker Change: Great. Thank you for the time.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Tony Bancroft with Gabelli funds.
Tony Bancroft: Good morning, gentlemen, and congratulations as usual.
Tony Bancroft: You guys have done a very good job of.
Tony Bancroft: Turning accretive M&A and you spoke about it this morning about the market being pretty strong for that.
Tony Bancroft: And you have quite a lot.
Speaker Change: Right.
Speaker Change: Breath.
Speaker Change: Of M&A problem displays to essentially.
Speaker Change: Every type of parts to the same strong et cetera.
Speaker Change: If you add your druthers all else being equal.
Speaker Change: You should if you go out and pick and choose.
Speaker Change: Where where do you think you want to do the most.
Speaker Change: Or is it the best.
Speaker Change: Maybe not so much on ex accretion, but just sticky business all the things you've talked about what you've done so well and maybe sorry.
Speaker Change: Discuss solo.
Speaker Change: Why your thought process. Thank you.
Speaker Change: Well, Tony I think we've always been opportunistic and one that's been part of our success is that we're willing to look in places where others aren't willing to look or that may not fit perfectly with some grand strategy.
Speaker Change: But are just great businesses and acquisitions and then we learn those businesses, we learn those product lines Adjacencies. If you will as we go and we add so while we always have a preferred target list, which makes sense in a pure strategic sense.
Speaker Change: We are we recognize that we may not be able to fulfill those so we go to other things that are available and that's worked extremely well I mean, obviously, we would like to add to everything that we're already doing and add more to that and sometimes that happens and we've done that extremely successfully in some.
Speaker Change: Times those are consolidations like.
Speaker Change: The recent ones that we've done or semi consolidations that fit extremely well, it's something that we already do the good news is we have so many different businesses now doing so many excellent high and things that they are touching increasingly more space and they are able to handle and even source Act.
Eric Mendelson: <unk> and bring them into their sphere, Eric do you want to answer that and then I think Victor you express that extremely well and the other thing that we've got as HEICO grows into adjacent white spaces. We now have a pretty big footprint and we're able to evaluate companies, we have experts and we're able to evaluate companies.
Eric Mendelson: Valuate technology, and I think get to a point.
Speaker Change: Far quicker than we ever were in our past.
Speaker Change: With a far more accurate and inform thesis so I think that thats really helping our acquisitions team.
Speaker Change: Hi.
Speaker Change: These businesses and be able to allocate capital relatively quickly and then.
Speaker Change: Of course once these businesses are purchased were able since we understand the space, we're able to very quickly get onboard with our leadership teams and the newly acquired acquisitions and encourage them to invest and support their investment plans into all sorts of new technologies and <unk>.
Speaker Change: That's been incredibly.
Speaker Change: Incredibly powerful and successful.
Speaker Change: And then I would say lastly, as a result of our deconsolidation and.
Speaker Change: <unk>.
Speaker Change: The decentralized business structure that is extremely valuable and rewarding too.
Speaker Change: Sellers into people, who want to come into the HEICO family because they are dealing with people who fundamentally understand the market in the business, but recognize that we are not experts in the technology that we're buying and that's why we're buying these businesses and we rely on these people and ensure that.
Speaker Change: They are intrinsically motivated to knock the ball out of the park.
Speaker Change: And I truly believe there is no better acquirer than HEICO for these companies if somebody wants to stay with the business wants to continue to build grow it have the autonomy.
Speaker Change: Dependent as you can see from the results. So we're.
Speaker Change: That's obviously a commercial but we are as Victor said we.
Speaker Change: Cast a wide net we really like all of the businesses that we're in we're fully committed to them and we even look outside we wanted to approach with beginner's mind and not assume we have the answer to everything so.
Speaker Change: We're going to continue to go very broadly.
Speaker Change: Yes that makes a lot of sense, Eric and Victor Thank you.
Speaker Change: Thanks for all your hard work and keep posting great stores. Thank you.
Speaker Change: Thank you very much.
Speaker Change: And we'll take our next question from Louis Raffetto with Wolfe Research.
Louis Raffetto: Hey, good morning, guys.
Speaker Change: Good morning morning.
Speaker Change: Yes.
Speaker Change: Echo the earlier comments on.
Speaker Change: The succession plan that Larry and yourself, so congrats on that.
Speaker Change: Thank you. Thank you very much.
Speaker Change: I guess you kind of both commented on.
Speaker Change: Sort of the activity in acquisitions, just wondering if you could provide any additional color what youre seeing from a competitive standpoint.
Speaker Change: Yes, I'd say the market is very competitive.
Speaker Change: Unfortunately, I think HEICO is greatest impediment frankly has been our success because people look at HEICO and they are they anyway.
Speaker Change: Like us they want to have the organic growth the acquired growth.
Speaker Change: And they enter the market and obviously, we don't appreciate that.
Speaker Change: But.
Speaker Change: <unk>.
Speaker Change: Something that we've got a continuum and I think it's something that makes us even better because we're an even better acquirer. It is a fully competitive market out there if people in my opinion and our opinion really wants the best home there is only one debt.
Speaker Change: That would qualify in that category.
Speaker Change: We do believe it Tycho for the reasons that I just enumerated.
Tony Bancroft: The answer to Tonys question, just a couple of minutes ago.
Speaker Change: But it is it is fully competitive and you have got to we're we're very capable of making decisions committing capital moving quickly and I am very confident that we're going to be able to reinvest our free cash as we have and continue our compound.
Speaker Change: As I said earlier, it's one thing to do it.
Speaker Change: For a small company to do it over a short period of time, but to do it for a longer sustained period of time I think is really a very different.
Speaker Change: Okay.
Speaker Change: A very different situation and we've been able to do that and frankly, we have the culture and it's not just a handful of people asking the right questions. It's having the right culture across the entire enterprise 100 different businesses.
Speaker Change: And that really is the real value of HEICO and why.
Speaker Change: So confident in the future.
Speaker Change: Great. Thank you very much.
Luke: Thanks Luke.
Speaker Change: We'll take our next question from Gavin Parsons with UBS.
Gavin Parsons: Thanks, guys good morning, and congrats on the new rules.
Gavin Parsons: Great. Thanks again.
Speaker Change: Could you talk a little bit about just the.
Speaker Change: Trends.
Speaker Change: ESG and purchasing behavior that you saw can emerge April may obviously, we've got the the 90 day tariffs pause coming up I'm wondering if that might introduce some more visibility sorry volatility.
Speaker Change: Yes, Great question I mean look after I think it's pretty well known that after.
Speaker Change: The tariffs came out in early April.
Speaker Change: In particular in China, There was an order I think by the government to reduce or eliminate purchases.
Speaker Change: And they did that for a period of time.
Speaker Change: I don't think that that was necessarily designed to be a long term strategy.
Speaker Change: To send a message which it did.
Speaker Change: And the administration is negotiating and trying to come up with something that's equitable and reasonable.
Speaker Change: So purchases have continued.
Speaker Change: And I would say the market is.
Speaker Change: Strong.
Speaker Change: It will be interesting to see what.
Speaker Change: The administration is able to do it looks like Europe is coming to the table and of course, the UK has and come up with something I think thats fair for everyone and I am very hopeful that they will have the same kind of outcome.
Speaker Change: With China.
Speaker Change: So.
Speaker Change: Purchasing practices are very strong no one wants to be able to not complete their flight.
Speaker Change: There is still a shortage of a lot of.
Speaker Change: Product out there and I think airlines are very wise to make sure that they've got plenty of spares on the shelf because theres not a tremendous depth. If you will to the inventory supply chain out there.
Speaker Change: So.
Speaker Change: Our folks anticipate things to continue to be very strong.
Speaker Change: And that's really how we see it.
Speaker Change: Great I appreciate it.
Speaker Change: Thank you.
Speaker Change: Well take our next question from Gautam Khanna with Cowen.
Gautam Khanna: Hey, good morning, guys.
Speaker Change: Hey, good morning Gordon.
Gautam Khanna: And.
Speaker Change: Yes, I appreciate your kind words that Tom and Rob.
Gautam Khanna: Thanks, and congrats to Larry.
Speaker Change: Guys I was wondering.
Gautam Khanna: With respect to the.
Gautam Khanna: The <unk> acquisition.
Gautam Khanna: At the onset of it you had mentioned the opportunity for cross selling introducing.
Speaker Change: Heico's PMA products to <unk> customers and vice versa, I'm curious like how far along you are in that cross selling journey.
Gautam Khanna: There is a pretty mature at this point.
Gautam Khanna: Maybe if you could just expand on that.
Gautam Khanna: Yes, I think that we've made progress.
Gautam Khanna: Frankly, I think there's a lot more.
Gautam Khanna: As I.
Gautam Khanna: And many times I think that combination is going to be the gift that keeps on giving.
Gautam Khanna: I think there is a lot more that can be done together.
Gautam Khanna: Frankly, both businesses are performing exceptionally well and I'm just so proud of the teams.
Gautam Khanna: All of our businesses.
Gautam Khanna: And frankly, they have more business than they can handle in many cases.
Gautam Khanna: But I do believe that there's going to be a lot more continued cross selling opportunities opportunities to help each other we find things every single day.
Gautam Khanna: That businesses can do together and I think it's.
Gautam Khanna: Going to continue along very well so I anticipate continued.
Gautam Khanna: Progress in <unk>.
Gautam Khanna: I'd have to say.
Gautam Khanna: A lot more to come to specifically answer your question.
Gautam Khanna: Okay, that's promising.
Gautam Khanna: Also just curious on the PMA.
Gautam Khanna: Product development velocity, I don't know how else to phrase it but just given we hear a lot of things about the FAA. These days is there any.
Gautam Khanna: Has there been any change in the new administrations at the pace.
Gautam Khanna: At which.
Gautam Khanna: These product certifications are happening do you see anything with respect to that.
Gautam Khanna: We're doing very well I would say there has not been any change.
Gautam Khanna: Separately a dimension that.
Gautam Khanna: Sure.
<unk>.
Gautam Khanna: And actually last week, Victor and I were up at the AIA Aerospace Industry Association Board of Governors meeting Secretary Duffy.
Gautam Khanna: Speaking about <unk>.
Gautam Khanna: <unk> and developments with regard to air traffic control.
Gautam Khanna: Another FAA folks as well.
Gautam Khanna: I think the FAA is really focused very much on delivering for the American people.
Gautam Khanna: And.
Gautam Khanna: We've always had an excellent working relationship with the FAA I think that they are extremely focused pointed in the right direction.
Gautam Khanna: I would say.
Gautam Khanna: Optimistic on where things are going but for us really no change we've always had an excellent relationship with the.
Gautam Khanna: Professionals, with whom we work with the FAA.
Gautam Khanna: Sure.
Gautam Khanna: And last one for me we've heard some relative pockets of strength in the aftermarket for example.
Gautam Khanna: Engine components being higher.
Gautam Khanna: Higher demand in some of the airframe.
Gautam Khanna: Materials can you characterize how that's if you've seen the same kind of pattern in your own business.
Gautam Khanna: Yes.
Gautam Khanna: Maybe also then if you could talk about.
Gautam Khanna: FM and if youre seeing greater penetration there. Thanks.
Gautam Khanna: Sure.
Gautam Khanna: I mean, there are times, where the.
Gautam Khanna: Non engine components are stronger than the engine components and vice versa. They are definitely over the last couple of years engine.
Gautam Khanna: <unk> has been very strong and that's partly.
Gautam Khanna: Because engine underperformed.
Gautam Khanna: Coming out of Covid.
Gautam Khanna: For a variety of reasons.
Gautam Khanna: No.
Gautam Khanna: I'm very bullish on the entire market both engine and non engine and we continue to invest in both.
Gautam Khanna: I wouldn't want to get into specifics.
Gautam Khanna: With regard to various engine types for competitive reasons.
Gautam Khanna: But.
Gautam Khanna: I'd say the market across the board is quite strong.
Gautam Khanna: I appreciate it guys, thanks and good luck.
Gautam Khanna: Thank you.
Gautam Khanna: Thank you.
Gautam Khanna: And we'll take our next question from Michael <unk>.
Gautam Khanna: With your list.
Speaker Change: Hey, good morning, guys really nice results.
Speaker Change: And thanks for the prepared commentary.
Speaker Change: In your opening remarks.
Speaker Change: I don't know if this is ed.
Speaker Change: Eric or Victor, but I always thought <unk> had a lot more breath in defence. It's obviously lagging the growth in SSG. It's the biggest difference there just the missile exposure in SSG I think it's been a bit since you guys had really spoke about that but it's still just spins and casings.
Speaker Change: Composites are there any other sort of component categories with that exposure and then I guess, maybe dovetailing and Carlo is that the biggest driver of margin strength in SSG that missile exposure.
Speaker Change: Well, let me take the last part of the question.
Speaker Change: The missile defense in the launch business and drone Uavs and all the stuff that we're doing over in specialty products.
Speaker Change: Yes.
Speaker Change: That's very helpful, but no I mean, I wouldn't say that our success is due to that.
Speaker Change: If you look at the parts and distribution and component repair those guys are literally hitting the ball out of the park as well so.
Speaker Change: I think it's really we're doing very well in many areas.
Speaker Change: Our defense business is very strong.
Speaker Change: In the areas that I mentioned, but also in the defense aftermarket we're doing extraordinarily well.
Speaker Change: Blue Aerospace Aero Glenn all of these companies are really performing.
Speaker Change: Exceptionally well and I think also when you look at ETE Ete's overall doing well in defense when you look at the year to date.
Speaker Change: Total sales change.
Speaker Change: In defense it was 9%.
Speaker Change: <unk>.
Speaker Change: Which is quite good.
Speaker Change: <unk> product that <unk> makes in defense is.
Speaker Change: Has to be manufactured.
Speaker Change: Whereas over in manufactured by Us typically.
Speaker Change: Whereas over in the flight support side, we've got.
Speaker Change: <unk>.
Speaker Change: Places, where we're able to source this product we manufacture a lot of it ourselves to but part of it is procured elsewhere. So I think.
Speaker Change: The EDG defense market holds very good potential and we're anticipating.
Speaker Change: Strength and improvement in that area.
Speaker Change: Okay helpful. Thanks, guys I appreciate it.
Speaker Change: Thank you.
Speaker Change: And at this time I'll turn the conference back to Victor Mendelson for any additional or closing remarks.
Speaker Change: We thank everybody for being on the call today, we look forward to talking with you in our next earnings call and of course as always are available to answer questions. You may have reached out to us and we wish you all well. Thank you very much.
Speaker Change: And this concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Okay.
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