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.
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: <unk>, Chief Executive Officer, and Carlos Macau, Our executive Vice President and Chief Financial Officer.
Before we get into the details and discussion on our call today, we thought we would take a moment to remember some people who we lost recently one is Tom Irwin. Many of you know Tom Irwin He was our senior executive Vice President He served as our.
Speaker Change: Our CFO for about 30 years.
Speaker Change: It was a very important part.
Speaker Change: Of our business for many years. So he was mostly retired at.
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.
Speaker Change: A wonderful husband father, and grandfather, and he's somebody who was really very instrumental in the earlier years as we were building the company.
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.
Speaker Change: <unk> father husband, and just a really wonderful person and we all feel better for having known both of them.
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.
Also thank 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: Your 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 served were or has 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 allies, we are deeply grateful for their courage commitment and the freedom they protect.
Speaker Change: HEICO 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 is strengthen the positive impact of our recent acquisitions.
Speaker Change: As we look ahead to the remainder of fiscal 'twenty five we are filled with deep optimism. The current administration's anticipated 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 and commercially.
Speaker Change: The Asian, and our team members exceptional talent and drive HEICO is uniquely positioned to capitalize on new opportunities and to sustain our momentum across diverse industries.
Speaker Change: In summarizing our second quarter fiscal 'twenty five record results.
Speaker Change: We note that consolidated operating income and net sales in the second quarter of fiscal 'twenty five 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.
Speaker Change: In the second quarter of fiscal 'twenty, five improving 24% and 19% respectively over the second quarter of fiscal 'twenty for the.
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 for the majority of its products, including double digit organic net sales growth.
Speaker Change: Space and aerospace products.
Speaker Change: Solid dated 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 'twenty, five up from $252 $4 million in the second quarter of fiscal 'twenty four.
Speaker Change: Notably our net debt to EBITDA ratio improved to 186 times as of April 32025 down from 2.06 times as of October 31, 2024 weeks.
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 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.
Eric Mendelson: Thank you Victor and good morning to everyone.
Eric Mendelson: Now before I begin the FSD and E T. The BTG 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 our.
Speaker Change: Our results were absolutely phenomenal and our team members literally hit the ball out of the park.
Speaker Change: 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.
Speaker Change: 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 congratulations to everyone.
Speaker Change: And now onto the flight support group.
Speaker Change: The flight support group's net sales increased 19% to a record $767 1 million in the second quarter fiscal 'twenty five.
Speaker Change: From $647 2 million in the second quarter of fiscal 'twenty for 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.
Speaker Change: <unk> acquisitions.
Speaker Change: 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.
Speaker Change: The Winco art and legacy HEICO operations continue to exceed our expectations and obviously this was an excellent combination.
Speaker Change: 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.
Speaker Change: We continue to operate when core as a standalone business operation and our strategy is cooperation cash capabilities and consistency without consolidation.
Speaker Change: The sales earnings and margins prove this strategy to be optimal.
Speaker Change: As I've mentioned before we continue to make good progress working together and serving our customers.
Speaker Change: 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.
Speaker Change: Three when core ecommerce platform lists all HEICO noncompetitive PMA.
Speaker Change: Poor wind quarter, utilizing heico's manufacturing base to quote and build many new products.
Speaker Change: <unk> engineering and regulatory cooperation.
Speaker Change: <unk> sharing best in class vendors.
Speaker Change: Kevin 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'dea Eh and.
Speaker Change: And finally, eight sharing various applications and strategies.
Speaker Change: The flight support group's organic defense net sales increased by 18% during the second quarter and continue to present, an excellent opportunity, especially as the current U S Presidential administration prioritizes defense and cost efficiency.
Speaker Change: 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.
Speaker Change: Our missile defense manufacturing business.
Speaker Change: Is experiencing significant growth.
Speaker Change: Ribbon 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 <unk>.
Speaker Change: Street best quality.
Speaker Change: 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.
Speaker Change: The operating income increase print.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: The flight support group's operating margin improved to 24, 1% in the second quarter of fiscal 'twenty five.
Speaker Change: From 23% in the second quarter of fiscal 2004.
Speaker Change: 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.
Speaker Change: 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 ssg's cash margin before amortization or EBIT, a as we call. It was.
Speaker Change: <unk>, 27%, which has been consistently excellent and is 110 basis points higher than the comparable FSD cash margin or EBITDA of 25, 9% in the second quarter of fiscal 'twenty four.
Speaker Change: 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.
Speaker Change: Now I will discuss the first quarter results of the electronic technologies group.
Speaker Change: The electronic technologies group's net sales increased 7% to $342 2 million in the second quarter of fiscal 'twenty five.
Speaker Change: From $319 3 million in the second quarter of fiscal 'twenty four.
Speaker Change: The net sales increase reflects organic growth of 4% and the impact from our fiscal 'twenty four and 'twenty five acquisitions.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: The electronic technologies group's operating income increased 3% to $77 9 million in the second quarter of fiscal 25 up from $75 3 million in the second quarter of fiscal 'twenty for.
Speaker Change: 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 the lower gross profit margin principally reflects the decreased differ.
Speaker Change: In medical products net sales, partially offset by the increased space product net sales.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: This is how we judge our businesses is that most closely correlates to cash on a true operating business base.
Speaker Change: Basis. These excellent. These are excellent margins and we are very pleased with them.
Speaker Change: And now I will turn the call back to Victor Mendelson to discuss the outlook for 2025.
Victor Mendelson: Alright. 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 aimed to accelerate growth where our recently completed acquisitions.
Victor 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.
Speaker Change: <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.
Speaker Change: 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.
Speaker Change: And with that.
Speaker Change: Those conclude that concludes our prepared remarks, and we turn the call over now to quest for questions that we asked the operators tomorrow to please.
Speaker Change: Read the names of each caller and their affiliation please.
Speaker Change: Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
Speaker Change: And we will take our first question from Sheila.
Speaker Change: With.
Speaker Change: Jefferies.
Speaker Change: Good morning, guys and thank you for the time.
Speaker Change: Great quarter again.
Eric Mendelson: Hey, good morning, maybe Eric two for you if that's okay.
Eric Mendelson: The first on FSC grasp and then what type of margins if that's okay.
Eric Mendelson: If you could provide some color on the 14%.
Eric Mendelson: Annick.
Eric Mendelson: In defense of the specialty products.
Speaker Change: Parse up 16, how does the repair and overhaul business and any color you could provide on conversations with airlines.
Speaker Change: Yeah.
Speaker Change: Well.
Speaker Change: So.
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 the way 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: <unk> really 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: 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 that to.
Speaker Change: A higher margin level to whether the 24% or 30% plus drop there.
Speaker Change: Is it being driven by the higher parts or.
Speaker Change: Potentially.
Speaker Change: Sheila This is Carlos let me take that one on.
Speaker Change: The growth in the parts business and the repair business actually the last several quarters have been relatively comparable where we've seen a nice move in the gross margin has been at our specialty products in particular as Eric mentioned in his prepared remarks.
Speaker Change: The defense business that.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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: Just wanted to follow up on the on the on the organic growth in the parts business are.
Speaker Change: Obviously.
Speaker Change: I think this is on top of like.
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.
Larry: 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 products accelerated market share.
Larry: And we're very optimistic that we are gaining market share and believe that our customers really value.
Larry: Significantly value the.
Larry: The products that we've got out there if you look.
Larry: Particularly excited that these numbers these organic growth numbers as well as organic growth earnings numbers come on top of <unk>.
Larry: 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.
Speaker Change: Continue to come out with new products.
Speaker Change: Net.
Speaker Change: New products in adjacent white spaces, all of our businesses are very aggressive.
Speaker Change: New product development and our customers.
Speaker Change: Seem 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.
Speaker Change: Curious just anything on the aftermarket and defense, obviously just anecdotally.
Speaker Change: Probably too early with doors, and all that stuff going on but just.
Speaker Change: As you look out 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, it's not going to be an immediate.
Speaker Change: Benefit, but it's going to be a longer term benefit there is a tremendous amount of money that the government can save and.
Speaker Change: We think 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 so 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 and 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.
Victor Mendelson: Got it and if I can just slip one more in just for Victor.
Victor Mendelson: Just 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 record backlog again.
Speaker Change: In any TG defense backlog is quite healthy as well.
Speaker Change: Youre 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 then 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: Our 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.
Tim Lugo: 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.
Speaker Change: I was wondering.
Speaker Change: Was there anything in particular in the quarter.
Speaker Change: 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.
Speaker Change: What's driving that are 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: I reviewed the sales with <unk>.
Speaker Change: Particular, 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: 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 its $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.
Speaker Change: HEICO has got 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 component repair stations two combined.
Speaker Change: <unk>.
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. It's 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, the financial strength and credibility of HEICO. So I think we're really sort of if you will hitting our stride and I look forward to.
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 your offer pretty good pricing.
Speaker Change: But what we've seen in the industry is that the Oems continue to increase.
Speaker Change: 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.
Heiko: 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 look <unk> been following HEICO for a long time, I think HEICO shareholders had been very well served by us.
Heiko: US restraining our pricing ability and generating big opportunities for US 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.
Heiko: Satisfying because we're really focused on costs and focused on giving great savings to our customers and creating fair margins for our shareholders.
Heiko: Continues to be our approach.
Heiko: Great. Thank you very much.
Speaker Change: Thanks Christine.
Heiko: Our next question from Ken Herbert with RBC.
Ken Herbert: Yeah, Hi, good morning.
Speaker Change: Good morning again.
Speaker Change: Good morning, maybe Eric or Victor on <unk>, you've obviously with accelerated another assessment significantly increased your European exposure I was just wondering if you could talk about what you're seeing in Europe. Today are you seeing an uptick in opportunities maybe have some of the strength in defense.
Heiko: They're translate to bookings growth, how should we think about your European exposure and growth within that within EDG.
Victor Mendelson: Ken This is Victor <unk> the answer is.
Heiko: I don't use one word or two words accelerating well we have seen an increase in orders we have seen an increase in sales out of our particularly our European defense businesses.
Heiko: Backlogs growing.
Heiko: But more important than that design ins and design possibilities really marching ahead, even faster than that.
Heiko: 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.
Heiko: For for HEICO.
Heiko: Particularly again in Europe, and I'm very excited about that.
Heiko: Obviously, the leader in that for us would be accelerating but even U S business I mean, even the 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. <unk>.
Eric Mendelson: And I don't I don't think thats going away. So quickly either so I'm 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.
Heiko: In various regions is really important and that's why <unk> is so appreciated in the European market.
Heiko: 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 defense, that's going to bode very well for the domestic European suppliers.
Eric Mendelson: I think we're well positioned on both the that <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.
Eric Mendelson: So that's a good question Ken so.
Eric Mendelson: 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.
Eric Mendelson: We're down about we're down to about.
Eric Mendelson: I don't know, 5% down on turns this quarter, which is good.
Eric Mendelson: I think that we will see as our revenue base continues to grow we should see.
Eric Mendelson: A little bit less investment in inventory, because I think going into the first half of the year. We do we do a lot of strategic buys we do all the things that set us up for the year that is that bleeds off during the first half of the.
Eric Mendelson: 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.
Eric Mendelson: I was going to be quite as high I'd, rather not give you a working capital.
Eric Mendelson: Number because.
Eric Mendelson: It fluctuates, but I don't think.
Eric Mendelson: I don't think we're heading in a direction of investment of working capital if anything I think it should be.
Eric Mendelson: <unk> to maybe slightly down as we get into the back half of the year.
Eric Mendelson: Great, Thanks, and nice cash flow in the quarter and congratulations everybody.
Eric Mendelson: Thank you. Thank you.
Eric Mendelson: Okay.
Speaker Change: Our next question comes from Scott <unk> with Melius research.
Speaker Change: Good morning, Scott morning, Scott.
Speaker Change: Maybe not.
Speaker Change: Scott Your line is open.
Speaker Change: We will take our next question from Noah <unk> with Goldman Sachs.
Noah: Thank you Hey, guys good morning.
Speaker Change: I wondered if you could just comment on what youre expecting from atg growth in the back half just it sounds like the order activity is better.
Speaker Change: Flow from backlog to revenue is maybe a little faster than just the year over year compares are quite you see looking at the back half of last year or so.
Speaker Change: Or should we expect EG G growth to accelerate the rate of growth to accelerate in the back half versus what you just reported.
Speaker Change: I think Carlos I'm going to because I think I'll, let you take that because I guess the man.
Speaker Change: Harper data, yeah manager predictions I know its Carlos.
Speaker Change: From my standpoint.
Speaker Change: 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.
Speaker Change: Other quarters should look very similar to this quarter I don't think we're going to get the 11% organic growth. We had in Q1 was very happy with the 4% this quarter the dynamics.
Speaker Change: Gonna 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.
Speaker Change: 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 electronics, which has been down should continue follow through.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 thats kind of the setup right now Carla.
Carla: That's super helpful. I appreciate that.
Carla: Any incremental update on your defense PMA effort and when we could start to see that actually hit revenue.
Carla: Yes.
Carla: Great question, I mean, <unk> got a lot of things that they're working.
Carla: Frankly, we were working this project well before those.
Speaker Change: And.
Speaker Change: But we think that there is still a lot of opportunity there.
Speaker Change: Things are.
Speaker Change: Very busy in Washington, right now as we all read.
Speaker Change: But we always said that this would not be 2025 story.
Speaker Change: It would it would come after and I think we still need to.
Speaker Change: Sure.
Speaker Change: 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.
Speaker Change: And we're working very hard at it but due to competitive reasons I'd rather sort of.
Speaker Change: <unk>.
Speaker Change: Hold off for the moment on supply in detail.
Speaker Change: Okay.
Speaker Change: And then just at SSG.
Speaker Change: The markets have been.
Speaker Change: Volatile different opinions on the macro out there.
Speaker Change: Heard some softer commentary from airlines Thats, obviously been pretty U S centric, but.
Speaker Change: <unk> accelerated the rate of growth in <unk>, I guess, just temperature checking what you're hearing from airlines, it's a little hard to.
Speaker Change: Bifurcate the seat mile growth has decelerated, but aftermarket growth is not in.
Speaker Change: To what extent are the airlines actually doing much better than we here versus there was just a lot of pent up demand.
Speaker Change: That's still flowing through because supply demand has been so tight and.
Speaker Change: In the end market.
Speaker Change: Yeah.
Speaker Change: Great question Noah and.
Speaker Change: In reading the my own feeling is reading the newspapers and seeing what's going on I mean, when liberation day happen. The tariffs came out there was a lot of concern.
Speaker Change: About travel.
Speaker Change: People took that I would say analysts and investors got very concerned about what that could mean.
Speaker Change: 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.
Speaker Change: Pent up travel demand if you look at travel as a percentage of GDP, it's still relatively small.
Speaker Change: If you're on slide you see how busy they are we know from the order demand in speaking with our customers that.
Speaker Change: 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.
Speaker Change: Things are still very high end.
Speaker Change: From what we see the gas is the pedal is pretty much to the floor.
Speaker Change: And then on top of that you've got.
Speaker Change: Older assets out there, which we've always said that the newer equipment is far more expensive to maintain than the older equipment and I think anybody with an airplane absolutely knows that's the case and this stuff is crazy expensive.
Speaker Change: 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.
Speaker Change: All of the legacy way, they can do that or if they want to go create savings through PMA or repair and our very efficient distribution, where we.
Speaker Change: Get to understand exactly what they need we can procure this stuff in advance offer very good pricing.
Speaker Change: I think we're just very well positioned with our decentralized approach.
Speaker Change: Two capturing market. So I think thats, probably why we are.
Speaker Change: A bit more optimistic and I think turning in numbers that are.
Speaker Change: Frankly industry, leading especially when you strip out pricing I mean, we're not.
Speaker Change: Jamming it to our customers.
Speaker Change: And we were able to get these numbers so.
Speaker Change: Yeah.
Speaker Change: Super interesting I appreciate the time.
Speaker Change: We recognize your comments.
Speaker Change: At the front end of the call that was nice of you to say thanks.
Speaker Change: Thanks, a lot guys.
Speaker Change: And ACI stock.
Speaker Change: Yes.
Ron Epstein: Next question comes from Ron Epstein with Bank of America.
Speaker Change: Hey, Good morning. This is Joe your line is answer Ron.
Speaker Change: Good morning morning.
Speaker Change: Okay.
Speaker Change: On the defense business.
Speaker Change: Great you guys gave some color on how strong the missile defense segment is.
Speaker Change: 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.
Speaker Change: Yeah, I mean, I would say the launch business has been has been very good.
Speaker Change: Launch drones, I think it's very actually Theres a lot of breadth in 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.
Speaker Change: Shiners so to speak.
Speaker Change: In the mix.
Speaker Change: But remember our strategy is to make components or sub components that go into larger assemblies and 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.
Speaker Change: <unk> targeting systems.
Speaker Change: Beyond <unk> and.
Speaker Change: 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.
Speaker Change: System, that's tied to it that allows it to operate.
Speaker Change: But missile defense, if I had to pick one that would be the standout that would be it but the others are pretty strong too.
Speaker Change: They're growing say theres yet.
Speaker Change: 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. Thank you.
Speaker Change: We'll take our next question from Peter Amit.
Speaker Change: 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 could Victor and Eric could you give us maybe your updated thoughts on tariffs I think a couple of quarters back you have 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.
Victor Mendelson: Yes, and I will caveat it by saying the obvious.
Victor Mendelson: An obvious here nobody knows what's going to happen with tariffs I believe at this point.
Victor Mendelson: 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 is really no change in that.
Victor Mendelson: 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.
Victor Mendelson: 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.
Victor Mendelson: For which may be havent procured all of the materials and you have fixed pricing on the sale and so on but again, we think fairly <unk>.
Victor Mendelson: Fairly immaterial on that.
Victor Mendelson: And we've gone through company by company and I don't think we have.
Victor Mendelson: A single company that has to obviously, even expect on their business a material impact. So that's our current thinking on <unk>.
Victor Mendelson: 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.
Speaker Change: 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 is or is it still kind of on that same trajectory of what you want to add to the catalog on an annual basis.
Victor Mendelson: Yeah, I mean, we have been able to increase the number.
Victor Mendelson: But the most important thing for us is really to make sure that we increase the penetration so.
Victor Mendelson: I think that the number of PMA is makes sense.
Victor Mendelson: From a HEICO and core perspective.
Victor Mendelson: And we've got to make sure that we can in fact, procure and inspect and sport.
Victor Mendelson: 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.
Victor Mendelson: 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 and nice results and thanks for the opening monologue comments I appreciate it. Thanks.
Victor Mendelson: Yes. Thank you.
Speaker Change: And our next question comes from Pete <unk> Kubicki with Alembic Global.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Yes.
Speaker Change: I just wanted to say hopefully he's listening, but congrats to laurel on a long and successful and storied career as he moves into the next phase.
Speaker Change: So congrats there.
Speaker Change: Thank you and I'll try to maybe put.
Speaker Change: Carlos on the spot again.
Speaker Change: SSG 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 FSC 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 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 is and margins are going north of that anytime soon what 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 cost and I think we can continue to eke out on an annual basis.
Speaker Change: <unk> 30 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 for us.
Speaker Change: 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: Yes, that's fair enough fair enough I appreciate the color and then just one last one for me.
Speaker Change: Maybe for Victor.
Speaker Change: On Atg defense just as.
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.
Speaker Change: 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: Yeah 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 would say the sweet spot for that.
Speaker Change: 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 what they're spending on when they're buying and how they're laying out the funds, but I think if we have that 10%, it's 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.
Speaker Change: Hey, good morning, Eric is growth at SSG broadly demand constrained 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 grosses. Thank you yeah, 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's was lamenting.
Speaker Change: Difficulty getting product.
Speaker Change: There is still plenty of supply constraint, so I would say that.
Speaker Change: Probably the 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: Very difficult continuing to be difficult to get.
Speaker Change: Alex 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.
Speaker Change: So I feel that we are definitely overcoming a lot of this but.
Speaker Change: Definitely there is a there continues to be a shortage of supply in general in the industry.
Speaker Change: It is getting better, but it's definitely still exists out there.
Speaker Change: Okay, and Eric can you give an update on the level of demand you're currently seeing in Asia for your product clients broadly looking for some sense of how the growth rate in that region is tracking and also interest and update on how large Asia as a percentage of SSG aftermarket sales at this point. Thank you.
Speaker Change: I don't have the breakdown in 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.
Speaker Change: There were periods, where it was lower I think things are coming back now.
Speaker Change: Even 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.
Speaker Change: Yeah.
Josh Sullivan: Hey, good morning.
Josh Sullivan: Good morning, Josh.
Speaker Change: In your 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 were seeing any implementation. So much as the announcement of plans right and executive orders coming out of the government.
Speaker Change: Reducing ordering reduce bureaucracy.
Speaker Change: And things like that so our reference there was.
Speaker Change: A comment of forward optimism.
Speaker Change: And just what we have noticed historically has been that when we have 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 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 new hires for 12 or whatever the number is.
Speaker Change: And quantify that but also Josh.
Speaker Change: And 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 frankly, the administrative the new administration has gotten the animal spirits going end of <unk>.
Speaker Change: Of course, the general support for space and defense has that's obvious.
Speaker Change: But even in the commercial area. There is 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.
Speaker Change: And when they feel that the the country in the world wants to expand and they want good positive things. They are much more motivated and much more intrinsically motivated to deliver.
Speaker Change: No.
Speaker Change: I think thats broadly 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: You just 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.
Speaker Change: How are you looking at that position expanding capacity.
Speaker Change: 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, 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 Makoni Bancroft with Gabelli funds.
Makoni Bancroft: Good morning, gentlemen, and congratulations as usual.
Speaker Change: You guys have done a very good job of doing accretive M&A and you spoke about it this morning.
Speaker Change: The market being pretty strong for that.
Speaker Change: Do you have.
Speaker Change: Quite a while.
Speaker Change: The breadth of.
Speaker Change: Although M&A problem displays.
Speaker Change: Essentially.
Speaker Change: Every type of part two vessels with fans drone et cetera.
Speaker Change: If you add your druthers, all else being equal and you sort of if you go out and pick and choose.
Speaker Change: Where do you think you want to do the most whereas the best M&A from you or maybe not so much on it.
Speaker Change: <unk>, but just sticky business all the things you've talked about what you've done so well.
Speaker Change: Maybe discuss the alone.
Speaker Change: Why your thought process. Thank you.
Speaker Change: Well you know.
Speaker Change: Toni I think we've always been opportunistic.
Speaker Change: And that's been part of our success is that we're willing to look in places where others aren't willing to look.
Speaker Change: Or that may not fit perfectly with some grand strategy, 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.
Speaker Change: 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 summer.
Speaker Change: Times those are consolidations like.
Speaker Change: 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.
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.
Eric Mendelson: 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 evaluate technology and I think get to a point.
Eric Mendelson: <unk> quicker than we ever were in our past with.
Eric Mendelson: With a far more accurate and informed thesis so I think that thats really helping our acquisitions team.
Eric Mendelson: Source 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: It'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: Decentralized business structure that is extremely valuable and rewarding to sellers and to 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.
Speaker Change: 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 they are intrinsically motivated to knock the ball out of the park and I truly believe there is no better acquirer than HEICO for these companies.
Speaker Change: He wants to stay with the business wants to continue to build grow and have the autonomy.
Speaker Change: Dependent as you can see from the results. So we're.
Victor Mendelson: 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 assuming 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 and 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: I'll Echo the earlier comments.
Speaker Change: Yes, 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 those competitive standpoint.
Speaker Change: Yeah, I'd say the market is very competitive.
Speaker Change: Unfortunately, I think heico's greatest impediment frankly has been our success because people look at HEICO and they they.
Speaker Change: They annually.
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: It's something that we've got to contend with and I think it's something that makes us even better because we're in an even better acquirer. It is a fully competitive market out there.
Speaker Change: People in my opinion, and our opinion really want the best home there is only one.
Speaker Change: That would qualify in that category.
Speaker Change: Really do believe it Tycho for the reasons that I just enumerated.
Speaker Change: The answer to Tonys question, just a couple of minutes ago.
Speaker Change: But it is it is fully competitive and you.
Speaker Change: <unk> got to we're we're very capable of making decisions committing capital moving quickly and I'm very confident that we're going to be able to reinvest our free cash as we have and continue our compounds.
Speaker Change: I said earlier, it's one thing to do it.
Speaker Change: For a small company or 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.
Louis Raffetto: Thanks Louis.
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.
Speaker Change: Thanks, Kevin.
Speaker Change: Could you talk a little bit about just the <unk>.
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 asked there.
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.
Speaker Change: <unk> 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: 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'd say the market is.
Speaker Change: Strong.
Speaker Change: It'll 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 U K has 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: We 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: We'll 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 about Tom and Rob.
Gautam Khanna: Thanks, and congrats to Larry.
Gautam Khanna: Okay. So 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.
Gautam Khanna: 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: This 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: <unk> many times I think that combination is going to be the gift that keeps on giving 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 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.
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 changes and developments with regard to air traffic control.
Gautam Khanna: Other FAA folks as well.
Gautam Khanna: I think the.
Gautam Khanna: <unk> 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: Okay.
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: Our 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: It may be also then if you could talk about.
Gautam Khanna: And if you're 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 because the engine underperformed.
Gautam Khanna: Coming out of Covid.
Gautam Khanna: For a variety of reasons.
Gautam Khanna: So 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.
Speaker Change: And we'll take our next question from Michael <unk> with.
Speaker Change: Sure list.
Gautam Khanna: Okay.
Gautam Khanna: Hey, good morning, guys really nice results.
Gautam Khanna: Thanks for the prepared commentary.
Gautam Khanna: In your opening remarks.
Gautam Khanna: I don't know if this is.
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.
Speaker Change: You guys have really spoke about that but it's still just spins and casings in composites are there any other sort of component categories with that exposure and then I guess, maybe maybe dovetailing and Carlos. This is that's 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, 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: Sure.
Speaker Change: 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: And.
Speaker Change: Which is quite good.
Speaker Change: The product at ETE makes in defense is.
Speaker Change: It has to be manufactured.
Speaker Change: Whereas over in the manufactured by us typically whereas over in the flight support side, we've got a variety of.
Speaker Change: Places, where we're able to source this product we manufacture a lot of it ourselves do 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: Our 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 reach 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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