Q3 2026 Heico Corp Earnings Call

August 26, 2026

Speaker #1: Welcome to the HEICO Corporation Q3 2026 financial results call. My name is Samara, and I will be your operator for today's call. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies.

Operator: Welcome to the HEICO Corporation Q3 2026 financial results call. My name is Samara, and I will be your operator for today's call. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements.

Speaker #1: HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include: among others, the severity, magnitude, and duration of public health threats; our 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 in our cost to complete contracts; governmental and regulatory demands—export policies and restrictions, reductions in defense, space, or homeland security spending by U.S.

Operator: Factors that could cause such differences include, among others, the severity, magnitude, and duration of public health threats, our 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 in our cost to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space, or homeland security spending by US and/or foreign customers, or competition from existing and new competitors, which could reduce our sales.

Speaker #1: and/or foreign customers; or competition from existing and new competitors, which could reduce our sales. Our ability to introduce new products and services at profitable pricing levels—which could reduce our sales or sales growth; product development or manufacturing difficulties—which could increase our product development and manufacturing costs and delay sales; cybersecurity events or other disruptions of our information technology systems—could adversely affect our business; and our ability to make acquisitions—including obtaining any applicable domestic and/or foreign governmental approvals—and achieve operating synergies from acquired businesses.

Operator: 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, cybersecurity events or other disruptions of our information technology systems could adversely affect our business and our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals and achieve operating synergies from acquired businesses, customer credit risk, interest, foreign currency exchange and income tax rates and economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, 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.

Speaker #1: 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, could negatively impact our costs and revenues.

Speaker #1: 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.

Speaker #1: 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.

Operator: We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law. I now turn the call over to Eric Mendelson, HEICO's Co-Chairman and Co-Chief Executive Officer.

Speaker #1: I now turn the call over to Eric Mendelson, HEICO's Co-Chairman and Co-Chief Executive Officer.

Speaker #2: Thank you, and good morning to everyone on this call. Thank you for joining us, and we welcome you to this HEICO Q3 2026 earnings announcement teleconference.

Eric Mendelson: Thank you, and good morning to everyone on this call. Thank you for joining us, and we welcome you to this HEICO Q3 fiscal 2026 earnings announcement teleconference. I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I'm joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO, and Carlos Macau, our Executive Vice President and CFO. Before getting into our results, I would first like to thank HEICO's nearly 13,000 outstanding team members around the world. Once again, your dedication to our company, our customers, and your fellow team members produced yet another exceptional quarter for HEICO. We are tremendously grateful for everything you do and remain excited about HEICO's future and the opportunities ahead.

Speaker #2: I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I'm joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO, and Carlos Macao, our Executive Vice President and CFO.

Speaker #2: Before getting into our results, I would first like to thank HEICO's nearly 13,000 outstanding team members around the world. Once again, your dedication to our company, our customers, and your fellow team members produced yet another exceptional quarter for HEICO.

Speaker #2: We are tremendously grateful for everything you do and remain excited about HEICO's future and the opportunities ahead. One of the most asked questions by investors and analysts is: What is HEICO's secret sauce, and how does HEICO continue to report exceptional earnings growth?

Eric Mendelson: One of the most asked questions by investors and analysts is: What is HEICO's secret sauce, and how does HEICO continue to report exceptional earnings growth, not only quarter-over-quarter and year-over-year, but decade over decade for nearly 37 years? The answer is always simple: Good markets, solid businesses, and even greater people. HEICO succeeds because we simply try harder, and our customers don't have to come to us, in general, because they have no other alternative. Customers buy from HEICO because they want to buy from HEICO. For our highest quality, with the shortest turn times, at the most competitive price, and most importantly, from who we believe are the best people in our industry. HEICO team members who possess a certain HEICO DNA developed over decades, not just the last upcycle.

Speaker #2: Not only quarter over quarter and year over year, but decade over decade—for nearly 37 years. And the answer is always simple: good markets, solid businesses, and even greater people.

Speaker #2: HEICO succeeds because we simply try harder, and our customers don't have to come to us, in general, because they have no other alternative. Customers buy from HEICO because they want to buy from HEICO.

Speaker #2: For our highest quality, with the shortest turn times, at the most competitive price, and, most importantly, from who we believe are the best people in our industry.

Speaker #2: HEICO team members possess a certain HEICO DNA developed over decades—not just during the last upcycle. So when you want to thank Victor, Carlos, or me, please know that we're simply the proverbial tip of the iceberg.

Eric Mendelson: When you want to thank Victor, Carlos, or me, please know that we're just simply the proverbial tip of the iceberg, and we in turn will thank team HEICO for all of their hard work, technical excellence, and most importantly, HEICO camaraderie. Of course, there's HEICO's team members' never-ending focus on cash flow. As one of our close friends told us many years ago, and as we always say at HEICO, "Earnings are opinion, cash flow is fact." In this quarter, I'm proud to announce there was $345 million of it. $345 million of cash generated from operations, which is almost 150% of our net income. Thank you, Team HEICO. We are immensely proud of our Q3 results, which shows continued margin expansion, robust organic growth, and strong cash generation.

Speaker #2: And we in turn will thank Team HEICO for all of their hard work, technical excellence, and, most importantly, HEICO camaraderie. And, of course, there's HEICO's team members' never-ending focus on cash flow.

Speaker #2: As one of our close friends told us many years ago, and as we always say at HEICO, "Earnings are opinion; cash flow is fact." And this quarter, I'm proud to announce there was $345 million of it.

Speaker #2: $345 million of cash generated from operations—which is almost 150% of our net income. Thank you, Team HEICO. We are immensely proud of our Q3 results, which show continued margin expansion, robust organic growth, and strong cash generation.

Speaker #2: We remain very bullish and optimistic about HEICO's opportunities and our ability to continue our long-term growth and profitability. To summarize the highlights of our Q3 2026 results: consolidated net income, operating income, and net sales in Q3 2026 represent record results for HEICO, increasing by 33%, 34%, and 23%, respectively, compared to Q3 2025.

Eric Mendelson: We remain very bullish and optimistic about HEICO's opportunities and our ability to continue our long-term growth and profitability. To summarize the highlights of our Q3 fiscal 2026 results, consolidated net income, operating income, and net sales in the Q3 of fiscal 2026 represent record results for HEICO, increasing by 33%, 34%, and 23% respectively, compared to the Q3 of fiscal 2025. Consolidated net income increased 33% to a record $235.4 million or $1.67 per diluted share in the Q3 of fiscal 2026, up from $177.3 million or $1.26 per diluted share in the Q3 of fiscal 2025. Consolidated operating income increased 34% to a record $355.2 million in the Q3 of fiscal 2026, up from $265 million in the Q3 of fiscal 2025.

Speaker #2: Consolidated net income increased 33% to a record $235.4 million, or $1.67 per diluted share, in Q3 2026, up from $177.3 million, or $1.26 per diluted share, in Q3 2025.

Speaker #2: Consolidated operating income increased 34% to a record $355.2 million in Q3 2026, up from $265 million in Q3 2025. Consolidated net sales increased 23% to a record $1,413.1 million in Q3 2026, up from $1,147.6 million in Q3 2025.

Eric Mendelson: Consolidated net sales increased 23% to a record $1,413.1 million in the Q3 of fiscal 2026, up from $1,147.6 million in the Q3 of fiscal 2025. The Electronic Technologies Group set all-time quarterly operating income and net sales records in the Q3 of fiscal 2026, increasing 55% and 36% respectively over the Q3 of 2025. Wow. These increases principally reflect strong 18% organic growth driven by an improved demand for most of the Electronic Technologies Group's products, as well as contributions from our fiscal 2026 and 2025 acquisitions. The Flight Support Group also set all-time quarterly operating income and net sales records in the Q3 of fiscal 2026, improving 24% and 18% respectively over the Q3 of fiscal 2025.

Speaker #2: The Electronic Technologies Group set all-time quarterly operating income and net sales records in Q3 2026, increasing 55% and 36%, respectively, over the third quarter of '25.

Speaker #2: Wow. These increases principally reflect strong 18% organic growth, driven by improved demand for most of the Electronic Technologies Group's products, as well as contributions from our fiscal 2026 and 2025 acquisitions.

Speaker #2: The Flight Support Group also set all-time quarterly operating income and net sales records in Q3 2026, improving 24% and 18%, respectively, over Q3 2025.

Speaker #2: These increases principally reflect strong 12% organic growth from increased demand across all of our product lines, as well as the contributions from our fiscal 2026 acquisitions.

Eric Mendelson: These increases principally reflect strong 12% organic growth from increased demand across all of our product lines, as well as the contributions from our fiscal 2026 acquisitions. Consolidated EBITDA increased 31% to $415.2 million in Q3 of fiscal 2026, up from $316.4 million in Q3 of fiscal 2025. Our net debt to EBITDA ratio improved to 1.57x as of 31 July 2026, down from 1.6x as of 31 October 2025. Cash flow provided by operating activities increased 49% to $345.3 million in Q3 of fiscal 2026, up from $231.2 million in Q3 of fiscal 2025. During Q3, we issued $1.2 billion of senior unsecured notes, further strengthening our balance sheet, and used the proceeds to repay outstanding borrowings under our revolving credit facility.

Speaker #2: Consolidated EBITDA increased 31% to $415.2 million in Q3 2026, up from $316.4 million in Q3 2025. Our net debt-to-EBITDA ratio improved to 1.57 times as of July 31, 2026, down from 1.6 times as of October 31, 2025.

Speaker #2: Cash flow provided by operating activities increased 49% to $345.3 million in Q3 2026, up from $231.2 million in Q3 2025. During the quarter, we issued $1.2 billion of senior unsecured notes, further strengthening our balance sheet, and used the proceeds to repay outstanding borrowings under our revolving credit facility.

Speaker #2: At the same time, we entered into an agreement to amend and extend the maturity date of our revolving credit agreement by three years, to June 2031, and to increase the committed capital to $2.2 billion.

Eric Mendelson: At the same time, we entered into an agreement to amend and extend the maturity date of our revolving credit agreement by three years to June 2031, and to increase the committed capital to $2.2 billion. Furthermore, our credit facility now includes a feature to increase the capacity by $800 million to become a $3 billion facility through increased lender commitments and can be extended for two additional one-year periods. We are very pleased with the execution of the bond offering and credit facility amendments, which further enhances our liquidity and financial flexibility and positions HEICO to continue pursuing our long-term growth objectives. We would like to thank Truist, Bank of America, PNC Bank, Wells Fargo, Crédit Agricole, TD Bank, Huntington Bank, JP Morgan, M&T Bank, and RBC for their long-term support of our growth capital needs.

Speaker #2: Furthermore, our credit facility now includes a feature to increase the capacity by $800 million, to become a $3 billion facility, through increased lender commitments, and it can be extended for two additional 1-year periods.

Speaker #2: We are very pleased with the execution of the bond offering and credit facility amendments, which further enhance our liquidity and financial flexibility, and position HEICO to continue pursuing our long-term growth objectives.

Speaker #2: We would like to thank Truist, Bank of America, PNC, Wells Fargo, Crédit Agricole, TD, Huntington, JPMorgan, M&T, and RBC for their long-term support of our growth capital needs.

Speaker #2: In July 2026, we paid our 96th consecutive semi-annual cash dividend since 1979 at the rate of $0.13 per share, representing an 8% increase over the prior dividend paid in January 2026.

Eric Mendelson: In July 2026, we paid our 96th consecutive semiannual cash dividend since 1979 at the rate of $0.13 per share, representing an 8% increase over the prior dividend paid in January of 2026. In June, we completed two acquisitions. Our Flight Support Group, through an 80% owned subsidiary, acquired 100% of the stock of Cook Defence Systems Limited, William Cook Stanhope Limited, and William Cook Intermodal Limited, collectively, we call Cook Defence. Cook Defence designs and manufactures track systems, mobility solutions, and armored steel components for military fighting vehicles. The purchase price was paid in cash, principally using proceeds from our revolving credit facility. The Electronic Technologies Group, Exxelia subsidiary, acquired 90% of the membership interests in CalRamic Technologies, LLC. CalRamic designs and manufactures high-voltage ceramic capacitors for high reliability applications, primarily serving the aerospace and defense markets, as well as select industrial niches.

Speaker #2: And then, in June, we completed two acquisitions. Our Flight Support Group, through an 80% owned subsidiary, acquired 100% of the stock of Cook Defense Systems Limited, William Cook-Stanhope Limited, and William Cook Intermodal Limited. Collectively, we call these Cook Defense.

Speaker #2: Cook Defense designs and manufactures track systems, mobility solutions, and armored steel components for military fighting vehicles. The purchase price was paid in cash, principally using proceeds from our revolving credit facility.

Speaker #2: And then, the Electronic Technologies Group Accelia subsidiary acquired 90% of the membership interests in CalRamic Technologies, LLC. CalRamic designs and manufactures high-voltage ceramic capacitors for high-reliability applications, primarily serving the aerospace and defense markets, as well as select industrial niches.

Speaker #2: The purchase price was paid in cash, using cash provided by operating activities. We expect both of these acquisitions to be accretive to our earnings within the year following the acquisition.

Eric Mendelson: The purchase price was paid in cash using cash provided by operating activities. We expect both of these acquisitions to be accretive to our earnings within the year following the acquisition. In addition, we have an excellent acquisition pipeline consisting of great potential transactions, both large and small. I now turn the call over to Victor Mendelson, HEICO's Co-Chairman and Co-CEO, to discuss the Q3 results of our Flight Support and Electronic Technologies Groups in greater detail.

Speaker #2: In addition, we have an excellent acquisition pipeline consisting of great potential transactions, both large and small. I now turn the call over to Victor Mendelson, HEICO's Co-Chairman and Co-CEO, to discuss the Q3 results of our Flight Support and Electronic Technologies Groups in greater detail.

Speaker #3: Eric, thank you very much. Before getting into the details, I'd also like to recognize and thank our outstanding team members around the world. The results we're discussing today reflect your continued dedication, your discipline, and your commitment to serving our customers and to strengthening our company.

Victor Mendelson: Eric, thank you very much. Before getting into the details, I would also like to recognize and thank our outstanding team members around the world. The results we are discussing today reflect your continued dedication, your discipline, and your commitment to serving our customers and to strengthening our company. We are incredibly grateful for everything you do, and we are as excited as ever about HEICO's future and the opportunities ahead for all of us. Turning now to details of the operations, the Flight Support Group's net sales increased 18% to a record $947.8 million in Q3 of fiscal 2026, up from $802.7 million in Q3 of fiscal 2025. That sales increase resulted from strong organic growth of 12%, as well as the impact from our fiscal 2026 acquisitions. Of course, the organic sales growth reflects increased demand across all, I emphasize all, of our product lines.

Speaker #3: We are incredibly grateful for everything you do, and we are as excited as ever about HEICO's future and the opportunities ahead for all of us.

Speaker #3: Turning now to details of the operations, the Flight Support Group’s net sales increased 18% to a record $947.8 million in Q3 2026, up from $802.7 million in Q3 2025.

Victor Mendelson: Turning now to details of the operations, the Flight Support Group's net sales increased 18% to a record $947.8 million in Q3 of fiscal 2026, up from $802.7 million in Q3 of fiscal 2025. That sales increase resulted from strong organic growth of 12%, as well as the impact from our fiscal 2026 acquisitions. Of course, the organic sales growth reflects increased demand across all, I emphasize all, of our product lines.

Speaker #3: That sales increase resulted from strong organic growth of 12%, as well as the impact from our 2026 acquisitions. Of course, the organic sales growth reflects increased demand across all—I emphasize, all—of our product lines.

Speaker #3: And the Flight Support Group's operating income increased 24% to a record $245.3 million in Q3 2026, up from $198.3 million in Q3 2025.

Victor Mendelson: The Flight Support Group's operating income increased 24% to a record $245.3 million in Q3 of fiscal 2026, up from $198.3 million in Q3 of fiscal 2025. That operating income increase was principally derived from that previously mentioned net sales growth, as well as an improved gross profit margin and SG&A expense efficiencies that were realized from the net sales growth. The improved gross profit margin principally reflects a more favorable product mix within our specialty products and our aftermarket replacement parts product lines. Flight Support Group's operating margin improved to 25.9% in Q3 of fiscal 2026, up from 24.7% in Q3 of fiscal 2025, and that operating margin increase arose chiefly from the previously mentioned improved gross profit margin.

Speaker #3: That operating income increase was principally derived from the previously mentioned net sales growth, as well as an improved gross profit margin and SG&A expense efficiencies.

Speaker #3: That were realized from the net sales growth. The improved gross profit margin principally reflects a more favorable product mix within our specialty products and our aftermarket replacement parts product lines.

Speaker #3: The Flight Support Group's operating margin improved to 25.9% in Q3 2026, up from 24.7% in Q3 2025, and that operating margin increase arose chiefly from the previously mentioned improved gross profit margin.

Speaker #3: Given, by the way, that acquisition-related intangible amortization expense consumed approximately 200 basis points of our operating margin in the FSG in Q3 2026, the FSG's cash margin—which is, by the way, the way we judge businesses and we believe businesses should be judged—so before amortization, we call it EBITDA, was approximately 28.5%.

Victor Mendelson: Given, by the way, that acquisition-related intangible amortization expense consumed approximately 200 basis points of our operating margin in the FSG in Q3 of fiscal 2026. The FSG's cash margin, which is the way, by the way, we judge businesses and we believe businesses should be judged. So before amortization, we call it EBITA, was approximately 28.5%, which has been consistently excellent and in absolute terms is, as far as I am concerned, spectacular. That is 110 basis points higher than the comparable FSG cash margin of 27.4% in Q3 of fiscal 2025. To achieve these margins at these levels while continuing to deliver meaningful cost savings, outstanding service, and exceptionally fast turnaround times to our customers is a strong reflection of the value our team members continue to deliver.

Speaker #3: Which has been consistently excellent and, in absolute terms, is, as far as I'm concerned, spectacular. That is 110 basis points higher than the comparable FSG cash margin of 27.4% in Q3 2025.

Speaker #3: To achieve these margins at these levels, while continuing to deliver meaningful cost savings, outstanding service, and exceptionally fast turnaround times to our customers, is a strong reflection of the value our team members continue to deliver.

Speaker #3: And turning to the ETG, the Electronic Technologies Group, net sales increased 36% to a record $483.5 million in Q3 2026, up from $355.9 million in Q3 2025.

Victor Mendelson: Turning to the ETG, the Electronic Technologies Group net sales increased 36% to a record $483.5 million in Q3 of fiscal 2026, up from $355.9 million in Q3 of fiscal 2025. That reflects robust organic growth of 18% and the impact from our fiscal 2026 and 2025 acquisitions. The organic net sales growth is mainly attributable to increased demand for, and I will add sales of, our other electronics, defense, and aerospace products. The Electronic Technologies Group operating income increased 55%, as you heard earlier, to a record $125.6 million in Q3 of fiscal 2026. That is up from $81 million in Q3 of fiscal 2025. Operating income increase principally reflects the previously mentioned net sales growth, our SG&A expense efficiencies realized from the sales growth, and an improved gross profit margin.

Speaker #3: And that reflects robust organic growth of 18% and the impact from our 2025 and 2026 acquisitions. The organic net sales growth is mainly attributable to increased demand for, and I'll add, sales of our other electronics, defense, and aerospace products.

Speaker #3: The Electronic Technologies Group operating income increased 55%, as you heard earlier, to a record $125.6 million in Q3 2026. That is up from $81 million in Q3 2025.

Speaker #3: Operating income increase principally reflects the previously mentioned net sales growth, our SG&A expense efficiencies realized from the sales growth, and an improved gross profit margin.

Speaker #3: That improved gross profit margin, by the way, was mainly fueled by the previously mentioned higher net sales of our aerospace products. The Electronic Technologies Group's operating margin improved to 26% in Q3 2026, up from 22.8% in Q3 2025.

Victor Mendelson: That improved gross profit margin, by the way, was mainly fueled by the previously mentioned higher net sales of our aerospace products. The Electronic Technologies Group's operating margin improved to 26% in Q3 of fiscal 2026, up from 22.8% in Q3 of fiscal 2025. That margin increase resulted from decreased SG&A expenses as a percent of net sales, primarily driven by the previously mentioned SG&A expense efficiencies, as well as the improved gross margin that I mentioned before. Importantly, just like with the discussion in the FSG, before acquisition-related intangible expense, our operating margin was 29.9%, virtually 30%, as intangibles amortization consumed about 390 basis points of the margin. This compares to 26.6% ETG cash margin in Q3 of fiscal 2025, an improvement of 330 basis points.

Speaker #3: That margin increase resulted from decreased SG&A expenses as a percent of net sales, primarily driven by the previously mentioned SG&A expense efficiencies, as well as the improved gross margin that I mentioned before.

Speaker #3: Importantly, just like with the discussion in the FSG, before acquisition-related intangible expense, our operating margin was 29.9%—virtually 30%—as intangible amortization consumed about 390 basis points of the margin.

Speaker #3: This compares to a 26.6% ETG cash margin in Q3 2025, an improvement of 330 basis points. Again, I can't emphasize enough—this is how we judge our businesses.

Victor Mendelson: Again, I can't emphasize enough, this is how we judge our businesses as that most closely correlates to cash generation. I think you know, and have known for many years, our predominant focus is on cash and cash generation. HEICO's a real company that generates real cash. It's not just accounting figures coming out of a machine. We make money. On a true operating basis, no matter how you look at it, those are great margins, and we are very pleased with the continued expansion of these margins, of course. So at this point, I will turn the call back over to our operator, Samara, to entertain the questions that we may have.

Speaker #3: As that most closely correlates to cash generation, and I think you know—and have known for many years—our predominant focus is on cash and cash generation.

Speaker #3: HEICO is a real company that generates real cash. It's not just accounting figures coming out of a machine. We make money. And on a true operating basis, no matter how you look at it, those are great margins, and we are very pleased with the continued expansion of these margins, of course.

Speaker #3: So, at this point, I will turn the call back over to our operator, Samara, to entertain the questions that we may have.

Speaker #2: Thank you. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Victor Mendelson: Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Larry Solow with CJS Securities.

Operator: Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Larry Solow with CJS Securities.

Speaker #2: Again, press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Larry Solo with CJS Securities.

Speaker #4: Great, thanks. Good morning, and congrats on a really great quarter. And like you said, Victor, you're printing money there. I guess, question for you, Victor, just on the really strong organic growth: 18%, I think, back-to-back quarters, and year-to-date mid-teens.

Larry Solow: Great. Thanks. Good morning, and congrats on a really great quarter. Like you said, Victor, you're printing money there. I guess question for you, Victor, just on the really strong organic growth, 18%, I think back-to-back quarters and year-to-date mid-teens, maybe this level's not sustainable, but certainly much better than it was a couple of years back. Just curious, can you help us just, is it sounds like all your categories are really hitting on all cylinders between defense, aerospace, and electronics. Is there any one particular category that's really just I know defense is almost half your revenue, so is that really driving this exceptional growth or just any more color there would be great.

Speaker #4: Maybe this level's not sustainable, but it's certainly much better than it was a couple years back. Just curious, can you help us—is it, it sounds like all your categories are really hitting on all cylinders?

Speaker #4: Between defense, aerospace, and electronics, is there any one particular category that's really—just, I know defense is almost half your revenue—so is that really driving this exceptional growth? Or just any more color there would be great.

Speaker #3: Yeah. Well, thank you for asking, Larry. Yes, it is very broad-based. I mean, I guess our highest percentage growth increase came out of our, what people now seem to be calling, industrial technology markets.

Victor Mendelson: Thank you for asking, Larry. Yes, it is very broad-based. I guess our highest percentage growth increase came out of our, what people now seem to be calling industrial technology markets. But I can say that defense and commercial aviation or aerospace were also extremely strong. In fact, every one of our verticals, if you look at it that way, every one of the markets, the verticals showed positive signs this quarter. But there were ones that were more standouts than others, but I am certainly proud of all of them.

Speaker #3: But I can say that defense and commercial aviation, or aerospace, were also extremely strong. I mean, in fact, every one of our verticals—if you look at it that way—every one of the markets, the verticals, showed positive signs this quarter.

Speaker #3: But there were ones that were more standouts than others, but I'm certainly proud of all of them.

Speaker #4: And how about just trends and bookings behind these categories? Any color there?

Larry Solow: How about just trends in bookings behind these categories? Any color there?

Speaker #3: Yeah. Yeah. Listen, the trends and bookings are very strong. We have a record backlog again, both organically and with acquisitions in the ETG—just a very strong backlog.

Victor Mendelson: Yeah. Listen, the trends in bookings are very strong. We have a record backlog again, both organically and with acquisitions in the ETG, just very strong backlog, extremely strong orders, particularly in that kind of industrial tech space. A lot of customers are coming in and asking us to expedite where possible in a number of instances, and then they are following up with orders beyond that, filling up the backlog. It does not so far seem to be all right where, pull this forward for us, and then it creates a gap somewhere later. We do everything we can, by the way, to satisfy our customers, to do it cost effectively, and to honor their requests where we can. It is not always possible. But it just seems there is very strong orders there. And I will say, similar situation in defense.

Speaker #3: Extremely strong orders, particularly in that kind of industrial tech space. A lot of customers are coming in and asking us to expedite, where possible, in a number of instances.

Speaker #3: And then they're following up with orders beyond that, filling up the backlog. It doesn't so far seem to be, "All right, we're pulling this forward for us, and then it creates a gap somewhere later."

Speaker #3: We do everything we can, by the way, to satisfy our customers and to do it cost-effectively, and to honor their requests where we can. It's not always possible.

Victor Mendelson: We do everything we can, by the way, to satisfy our customers, to do it cost effectively, and to honor their requests where we can. It is not always possible. But it just seems there is very strong orders there. And I will say, similar situation in defense.

Speaker #3: But it just seems there are very strong orders there. And I will say, it's a similar situation in defense. There's a lot of requests for pull-forward, the same in commercial aviation.

Victor Mendelson: There is a lot of requests for pull forward, the same in commercial aviation and some of the other markets. Right now seems to be a moment where customers are saying, "How quickly can you get this to us? Can you get it to us faster?

Speaker #3: And some of the other markets right now, it seems to be a moment where customers are saying, "How quickly can you get this to us?"

Speaker #3: Can you get it to us faster?

Speaker #4: Right. Okay. No, oh, great. Appreciate that. Last question, just for Carlos, just on the margins. Obviously, Victor discussed the EBITDA margins—above 28% now, two consecutive quarters, consolidated.

Larry Solow: Right. Okay. No, great. Appreciate that. Last question, just for Carlos, just on the margins. Victor discussed the EBITA margins above 28% now two consecutive quarters consolidated. Do not want to get ahead of you, but just any thoughts as you wrap up the year and then as we look out over the next couple of years?

Speaker #4: Yeah, don't want to get ahead of you, but just any thoughts as we wrap up the year and then as we look out over the next couple of years?

Speaker #3: I mean, from my perspective, we still expect, in that segment, the 22% to 24% GAAP margins, which really equate to something like 26% to 28% EBITDA margins.

Carlos Macau: From my perspective, we still expect in that segment the 22% to 24% GAAP margins, which really equate to something like 26% to 28% EBITA margins. We have had a strong couple quarters. Of course, our first quarter was a little light on the operating margin side. So, for the full year, we still expect that range. We are still in the process now of doing budgets and thinking about next year, and we will see how things play out, Larry. I do not want to

Speaker #3: We've had a strong couple of quarters. Of course, our first quarter was a little light on the operating margin side. So for the full year, we still expect that range.

Speaker #3: We're still in the process now of doing budgets and thinking about next year, and we'll see how things play out. Larry, I don't want to get too far out ahead of us.

Larry Solow: Yeah

Larry Solow: get too far out ahead of us

Carlos Macau: get too far out ahead of us

Larry Solow: Sure

Speaker #3: On that topic—but right now, the tailwind that we're getting from aerospace, defense, space, really all the verticals that Victor mentioned, is very positive. And as long as that mix holds in, the segment always surprises us to the upside.

Carlos Macau: on that topic. But right now, the tailwind that we are getting from aerospace, defense, space, really all the verticals, as Victor mentioned, is very positive. As long as that mix holds in, the segment always surprises us to the upside. So that is kind of how I would like to answer that and rather not elevate expectations at this point.

Speaker #3: So, that's kind of how I'd like to answer that, and I'd rather not elevate expectations at this point.

Speaker #4: Fair enough. I appreciate it. Thanks, guys.

Larry Solow: Fair enough. Okay. I appreciate it. Thanks, guys.

Speaker #3: You bet.

Carlos Macau: You bet.

Speaker #2: And we'll take our next question from Noah Poponak with Goldman Sachs.

Carlos Macau: We will take our next question from Noah Poponak with Goldman Sachs.

Operator: We will take our next question from Noah Poponak with Goldman Sachs.

Speaker #5: Hey, good morning, everyone.

Noah Poponak: Hey, good morning, everyone.

Speaker #4: Hi, Noah.

Carlos Macau: Hi, Noah.

Speaker #5: Morning. Carlos, maybe just to quickly follow up there on the ETG margin. The last two quarters—26 and change versus that 22 to 24—is that entirely mix?

Noah Poponak: Carlos, maybe just to quickly follow up there on the ETG margin. The last two quarters, 26 and change versus that 22% to 24%, is that entirely mix? Because it sounds like you are also referencing SG&A efficiencies, which I think would be longer lasting, and then presumably just as you continue to grow revenue, there is an overhead absorption impact as well.

Speaker #5: Because it sounds like you're also referencing SG&A efficiencies, which I think would be longer-lasting, and then, presumably, just as you continue to grow revenue, there's an overhead absorption impact as well.

Speaker #3: Yep. No, you're 100% right, Noah. I mean, the segment—you've known us for a long time—the segment is quite mix-sensitive. And the challenges, particularly in the ETG, with our fourth quarter going into what are most calendar year filers' last quarter, the mix can get a little chaotic.

Carlos Macau: Yep. You are 100% right, Noah. You have known us for a long time. The segment is quite mix sensitive, and the challenge is, particularly in ETG with our Q4 going into what their most calendar year filers last quarter, the mix can get a little chaotic. I do not want to set expectations too high. I cannot give you a good or bad reason why the margins would not remain strong given the setup with our end markets. At this moment, I do not want to plant a flag and sort of change our internal expectations or what we talk about publicly related to margins till we get another quarter or two under our belts.

Speaker #3: And so I don't want to set expectations too high. I don't feel like—there's—I can't give you a good or bad reason why the margins would not remain strong, given the setup with our end markets.

Speaker #3: But at this moment, I don't want to— I don't want to plant a flag and sort of change our internal expectations or what we talk about publicly related to margins until we get another quarter or two under our belts.

Speaker #5: Okay, makes sense. You guys have talked about the cash flow strength. It looks like this will be the second year where the free cash conversion from EBITDA is around 70%.

Noah Poponak: Okay. Makes sense. You guys have talked about the cash flow strength. It is looking like it will be a second year where the free cash conversion from EBITDA is around 70%. I do not know if you could talk about where you expect the year to wrap up around the USD 1 billion mark on free cash, and just is there something that has changed structurally in the business to have a little bit higher conversion from the P&L than you have had in the past?

Speaker #5: I don't know if you could talk about where you expect the year to wrap up, around the billion-dollar mark on free cash, and just— is there something that’s changed structurally in the business to have a little bit higher conversion from the P&L than you've had in the past?

Speaker #3: No, there haven't been any structural changes. I think that what happens here at HEICO is we incrementally add sales to the business and grow.

Carlos Macau: No, there hasn't been any structural changes. I think what happens here at HEICO is we incrementally add sales to the business and grow. We don't have a commensurate growth in what I would call corporate overhead and BS, right? The dollars we spend to grow the business are done at the subsidiary levels, and that is the most efficient way to spend our money to grow the business. It's not a big corporate overhead monster. We do get a lot of lift, to your point, in our cash flow through these sales growth. There's nothing structural that's changed, as I do expect this year to be quite high in free cash generation. There's no leaves to add to that tree for you as far as any structural changes.

Speaker #3: We don't have a commensurate growth in what I would call corporate overhead and BS, right? The dollars we spend to grow the business are truly spent at the subsidiary levels.

Speaker #3: And that is the most efficient way to spend our money to grow the business. It's not a big corporate overhead monster, so we do get a lot of lift, to your point.

Speaker #3: And our cash flow, through these sales growths, there's nothing structural that's changed. I do expect this year to be quite high in free cash generation.

Speaker #3: And so, nothing—no, there's no leaves to add to that tree for you, as far as any structural changes.

Speaker #5: Okay. And then lastly, on its deployment, since Wencor, it's been many quarters of a few hundred million dollars deployed towards smaller acquisitions. As we look to '27 and '28, are we more likely to see that continue?

Noah Poponak: Okay. Lastly, on its deployment. Since Wencor, it's been many quarters of a few hundred million USD deployed towards smaller acquisitions. As we look to 2027 and 2028, are we more likely to see that continue, or are we more likely to see something closer to the size of Wencor again?

Speaker #5: Or are we more likely to see something closer to the size of Wencore again?

Speaker #3: So I'll let Eric and Victor jump on that one, but I will point out that we spent a lot of time during the third quarter redoing somewhat of our capital structure to sort of reshuffle the deck and create liquidity so that we could—so I could make sure that when Eric and Victor go to the grocery store and buy their businesses, they have plenty of cash to do it with.

Carlos Macau: I'll let Eric and Victor jump on that one, but I will point out that we spent a lot of time during Q3 redoing somewhat of our capital structure to reshuffle a deck and create liquidity so I could make sure that when Eric and Victor go to the grocery store and buy their businesses, they have plenty of cash to do it with. Right now, as Eric mentioned in the opening remarks, with our accordion, we got close to $3 billion in capacity right now off our line that we could deploy. We're set up to continue a nice string of acquisitions here. Now, the question for you two guys, I'm talking to Eric and Victor at the table here, do we have those opportunities to do it?

Speaker #3: So right now, as Eric mentioned in the opening remarks, with our accordion, we've got close to $3 billion in capacity right now off our line that we could deploy.

Speaker #3: And so, we're set up to continue a nice string of acquisitions here. Now, the question for you two guys—I'm talking to Eric and Victor at the table here.

Speaker #3: Do we have those opportunities to do it?

Speaker #4: Yes. So, Noah, our pipeline is incredibly full. We've got an incredible M&A team, and they are out beating the bushes, looking at all sorts of proprietary deals and various processes. As you know, we've worked very hard to be the buyer of choice.

Eric Mendelson: Yes. Noah, our pipeline is incredibly full. We've got an incredible M&A team, and they are out beating the bushes, looking at all sorts of proprietary deals, various processes. As you know, we've worked very hard to be the buyer of choice, and I really believe that we are the best home

Speaker #4: And I really believe that we are the best home in the industry for businesses—the way we treat people, what the expectations are going forward, the network that they're plugged into.

Eric Mendelson: In the industry for businesses, the way we treat people, what the expectations are going forward, the network that they are plugged into. Victor and I are very optimistic on continuing our track record. With regard to small or medium-sized businesses versus larger businesses, I would say that HEICO is very comfortable with all of those. We are comfortable with small acquisitions. We understand how the small deals work, small businesses work, and we provide a great home. Likewise, with the medium, and likewise with the large. The Wencor combination has been an absolute home run for HEICO as well as for Wencor. It has gone exceptionally well. We have got a phenomenal team there, and it has given us a lot of confidence to execute on larger deals should they become available. The issue is not whether there are targets out there.

Speaker #4: And I would say Victor and I are very optimistic about continuing our track record. With regard to smaller and medium-sized businesses versus larger businesses, I would say that HEICO is very comfortable with all of those.

Speaker #4: We're comfortable with small acquisitions. We understand that the small deals work, small businesses work, and we provide a great home. It's the same with the medium ones.

Speaker #4: And likewise, with the large, the Wencore combination has been an absolute home run for HEICO as well as for Wencore. It's gone exceptionally well.

Eric Mendelson: The Wencor combination has been an absolute home run for HEICO as well as for Wencor. It has gone exceptionally well. We have got a phenomenal team there, and it has given us a lot of confidence to execute on larger deals should they become available. The issue is not whether there are targets out there.

Speaker #4: We've got a phenomenal team there, and it's given us a lot of confidence to execute on larger deals, should they become available. The issue is not whether there are targets out there; it's more whether the culture really fits.

Eric Mendelson: It is more whether the culture really fits, like it did with Wencor, and if the price works for everybody. I can promise you, we are very busy on all fronts.

Speaker #4: Like it did with Wencor. And if the price works for everybody. So I can promise you we're very busy on all fronts.

Speaker #3: And I just might add to that that Wencor was our largest acquisition, but we have also done some of considerable size as well. And all of those have performed exceedingly well.

Victor Mendelson: I just might add to that, Wencor was our largest acquisition, but we have also done some of considerable size as well, and all of those have performed exceedingly well. We have been very happy, so the deals of all size have worked nicely.

Speaker #3: We've been very happy, so the deals of all sizes have worked nicely.

Speaker #2: I think, just to put a fine point on all of that, Noah, just remember our goal is to grow the company. The net income growth target for the company is just to continue to grow 15 to 20 percent annually.

Carlos Macau: I think just to put a fine point on all of that, Noah, just remember our goal is to grow the company 15% to 20% annually. The net income growth in the company goal is just to continue to grow 15% to 20% annually. I think between our organic growth and the capacity we have to fund deals, we should be in good position to continue that track record.

Speaker #2: And I think, between our organic growth and the capacity we have to fund deals, we should be in a good position to continue that track record.

Speaker #5: Thanks very much.

Noah Poponak: Thanks very much.

Speaker #4: Thank you.

Eric Mendelson: Thank you.

Victor Mendelson: Thank you.

Speaker #1: And we'll take our next question from Peter Armand with Baird.

Eric Mendelson: We'll take our next question from Peter Arment with Baird.

Operator: We'll take our next question from Peter Arment with Baird.

Speaker #6: Yeah, good morning. Eric, Victor, Carlos—nice results.

Peter Arment: Yeah, good morning Eric, Victor, Carlos. Nice results.

Speaker #2: Thank you.

Eric Mendelson: Thank you.

Victor Mendelson: Thank you.

Peter Arment: Hey, Victor, ETG growth kind of accelerating. I wonder if you could maybe just give us an update on what the demand pull is from Europe. Obviously, we know those budgets are firming up and just thinking about Exxelia and some of your other European footprint, maybe you could give us a little more color on Europe.

Speaker #6: Hey, Victor, ETG growth is kind of accelerating. I wonder if you could maybe just give us an update on what the demand pull is from Europe?

Speaker #6: Obviously, we know those budgets are firming up, and just thinking about Axilia and some of your other European footprint, maybe you could give us a little more color on Europe.

Speaker #3: Yeah, thank you for asking. Europe has been very strong for us, both here in the US shipping to Europe, by the way, and from within the European market itself.

Victor Mendelson: Yeah. Thank you for asking. Europe's been very strong for us, both here in the US, shipping to Europe, by the way, and from within the European market itself. Exxelia, I was alluding to that in my answer to Noah's question. Exxelia is doing extremely well, both in Europe and here, I should add. But Europe, our strategy in Europe has been to grow there. We've added some acquisitions you've seen recently over there. I think we have a pretty strong appetite for it. We're excited about that future. Not just on defense, for the obvious reasons of their rising defense budgets, but also on commercial aviation as well as the industrial tech.

Speaker #3: And Axelia, I was alluding to that in my answer to Noah's question. Axelia is doing extremely well, both in Europe and here, I should add.

Speaker #3: But Europe—our strategy in Europe has been to grow there. We've added some acquisitions, as you've seen recently, over there. I think we have a pretty strong appetite for it.

Speaker #3: And we're excited about that future. And not just on defense, for the obvious reasons of their rising defense budgets, but also on commercial aviation as well as the industrial tech.

Speaker #6: Got it. Appreciate that. And then just maybe a high-level one, both for Eric and Victor, just on the right to repair legislation. There are a lot of things going on.

Peter Arment: Got it. Appreciate that. Then just maybe a high-level one, both for Eric, Victor, just on the right to repair legislation, a lot of things going on. Obviously, there's been things kicking around since the 2024 FAA Reauthorization Act, Section 349. If the language stays in for the fiscal 2027 NDAA, just wondering how you're thinking about the tailwinds or how quickly that could impact your business, both on the commercial and defense side of things. Thanks.

Speaker #6: Obviously, there's been things kicking around since the 2024 FAA Reauthorization Act, Section 349. If the language stays in for the fiscal '27 NDAA, just wondering how you're thinking about the tailwinds or how quickly that could impact your business both on the commercial and defense side of things.

Speaker #6: Thanks.

Speaker #3: Yeah. This is Eric Peter. I can tell you that HEICO's approximately 100 operating businesses are all very knowledgeable about what's happening out in the field.

Eric Mendelson: Yeah. This is Eric, Peter. I can tell you that HEICO's approximately 100 operating businesses are all very knowledgeable about what's happening out in the field, and they are going to take opportunity of whatever presents itself. I think that there are some very good opportunities for HEICO in that area. I don't want to get out in front of it. We'll see what happens with the final outcome of all this. But I can promise you that our folks are really going to be on top of it, and we think there are a number of areas of opportunity. Without going into specifics, obviously for competitive reasons, we think we're in a very good position to basically help save the government a lot of money.

Speaker #3: And they are going to take advantage of whatever presents itself. So, I think that there are some very good opportunities for HEICO in that area.

Speaker #3: I don't want to get out in front of it. We'll see what happens with the final outcome of all this. But I can promise you that our folks are really going to be on top of it, and we think there are a number of areas of opportunity.

Speaker #3: Without going into specifics, obviously, for competitive reasons, we think we're in a very good position to basically help save the government a lot of money.

Speaker #6: Appreciate it. I'll jump back in the queue. Thanks, guys.

Peter Arment: Appreciate it. I'll jump back in the queue. Thanks, guys.

Speaker #3: Thank you.

Eric Mendelson: Thank you.

Victor Mendelson: Thank you.

Speaker #1: We'll take our next question from Sheila Kayalu with Jefferies.

Eric Mendelson: I'll take our next question from Sheila Kahyaoglu with Jefferies.

Operator: I'll take our next question from Sheila Kahyaoglu with Jefferies.

Speaker #7: Good morning, guys, and thank you so much for the time. Lots to chat about. Maybe, Eric, I'll start with you, if that's okay.

Sheila Kahyaoglu: Good morning, guys, and thank you so much for the time. Lots to chat about. Maybe Eric, I will start with you, if that is okay. Can we just chat about the different parts of FSG growth to lead to the 12%? What you saw within aftermarket replacement, repair, and then specialty products.

Speaker #7: Can we just chat about the different parts of FSG growth that led to the 12%, and what you saw within aftermarket replacement, repair, and then specialty products?

Speaker #3: Sure. So, the parts business you're talking about is on the organic side.

Eric Mendelson: Sure. The parts business, you are talking on the organic side-

Speaker #7: Yeah.

Speaker #3: Was the 15% growth organic growth? And by the way, I should mention I know that it's sort of standard for the industry to talk about organic revenue growth.

Sheila Kahyaoglu: Yeah

Sheila Kahyaoglu: was 15% growth, organic growth. By the way, I should mention, I know that it is sort of standard for the industry to talk about organic revenue growth. But again, just to focus, at HEICO, the thing that we really care about is operating income growth, organic operating income growth, and that is really the key driver for us. Let me start out by saying that the 12% organic growth, which we are very happy with on revenue, pales in comparison compared to approximately 20% organic operating income growth. That is what our people are focused on. If they can trade lower margin sales for higher value add sales where we can drive margin, I can tell you, nobody at HEICO is compensated based on revenue. Revenue does not really matter. It is obviously the earnings.

Eric Mendelson: was 15% growth, organic growth. By the way, I should mention, I know that it is sort of standard for the industry to talk about organic revenue growth. But again, just to focus, at HEICO, the thing that we really care about is operating income growth, organic operating income growth, and that is really the key driver for us. Let me start out by saying that the 12% organic growth, which we are very happy with on revenue, pales in comparison compared to approximately 20% organic operating income growth. That is what our people are focused on. If they can trade lower margin sales for higher value add sales where we can drive margin, I can tell you, nobody at HEICO is compensated based on revenue. Revenue does not really matter. It is obviously the earnings.

Speaker #3: But again, just to focus at HEICO, the thing that we really care about is operating income growth—organic operating income growth. And that's really the key driver for us.

Speaker #3: And let me start out by saying that the 12% organic growth—which we're very happy with—on revenue pales in comparison to approximately 20% organic operating income growth.

Speaker #3: And that's what our people are focused on. And if they can trade lower-margin sales for higher value-add sales, where we can drive margin, I can tell you, nobody at HEICO is compensated based on revenue.

Speaker #3: Revenue doesn't really matter. Obviously, it's the earnings. But to answer your question, parts and distribution was 15%, specialty products was 14%, and component repair was 5%, which obviously is lower and brought down the average.

Eric Mendelson: But to answer your question, the parts and distribution, 15%, the specialty products is 14%, and the component repair was 5%, which obviously is lower and brought down the average. But you also have to understand that in the component repair business, we have a number of businesses where their value proposition is to develop alternative repairs, and use alternative parts, and that brings down the revenue. So, it increases the value to our customers. It frankly can increase the profitability to HEICO, which is what we all care about, but it can bring down the revenue. Now, we do also have a number of businesses within component repair that are OEM aligned, and where there is no use of alternative material and no plans to do that. There is a market for that on those products with those customers. We continue to go ahead and do that.

Speaker #3: But you also have to understand that, in the component repair business, we have a number of businesses where their value proposition is to develop alternative repairs.

Speaker #3: And use alternative parts, and that brings down the revenue. So it increases the value to our customers. It, frankly, can increase the profitability to HEICO, which is what we all care about.

Speaker #3: But it can bring down the revenue. So now, we do also have a number of businesses within component repair that are OEM-aligned, and where there is no use of alternative material and no plans to do that.

Eric Mendelson: Now, we do also have a number of businesses within component repair that are OEM aligned, and where there is no use of alternative material and no plans to do that. There is a market for that on those products with those customers. We continue to go ahead and do that.

Speaker #3: And there is a market for that, on those products with those customers. And we continue to go ahead and do that. But we do still have a chunk of our business focused on the alternative space.

Eric Mendelson: But we do still have a chunk of our business focused on the alternative space, and that does bring down the revenue. But I can tell you that the profitability is definitely higher than the organic revenue growth in that space.

Speaker #3: And that does bring down the revenue. But I can tell you that the profitability is definitely higher than the organic revenue growth in that space.

Speaker #7: No, that's great color. Maybe if I could double-click on those two items, then—just on the component repair and also specialty products. How is PMA adoption going?

Sheila Kahyaoglu: No, that's great color. Maybe if I could double-click on those two items then, just on the component repair and also specialty products. How is PMA adoption going? Does the component repair work help in that process? It seems like it does. And then within specialty products, if you could in any way give us color on that 14%, what your defense business is doing relative to commercial.

Speaker #7: Does the component repair work help in that process? It seems like it does. And then, within Specialty Products, if you could in any way give us color on that 14%—what your defense business is doing relative to commercial.

Speaker #3: Yeah. So, with regard to component repair, yes, the PMA penetration is going extraordinarily well in the markets that want it. Again, we're very careful.

Eric Mendelson: Well, with regard to component repair, yes, the PMA penetration is going extraordinarily well in the markets that want it. Again, we're very careful. We have multiple subsidiaries and multiple product lines whereby we don't even offer alternatives with certain products because those are our agreements and that's what the customers want. But in the areas where the customers are asking for alternatives and where we're generating them, yes, the PMA penetration is doing extremely well, and the HEICO proprietary DER penetration is doing equally as well. With regard to specialty products, that is largely driven by defense. Our organic growth in defense is very large. It's probably well up in the upper 20s. We anticipate continued growth in specialty products in the defense area.

Speaker #3: We have multiple subsidiaries and multiple product lines, whereby we don't even offer alternatives with certain products because those are our agreements and that's what the customers want.

Speaker #3: But in the areas where the customers are asking for alternatives, and where we're generating them, yes, the PMA penetration is doing extremely well. Proprietary DER penetration is doing equally as well.

Speaker #3: With regard to specialty products, that is largely driven by defense. And our organic growth in defense is very large. It's probably, I mean, well up in the upper 20s.

Speaker #3: And we anticipate continued growth in specialty products in the defense area.

Speaker #7: Thank you so much for that, caller.

Sheila Kahyaoglu: Thank you so much for that color.

Speaker #3: Thanks, Sheila.

Eric Mendelson: Thanks, Sheila.

Speaker #2: And Sheila? You still there? You didn't end. But scrambled egg whites, avocado toast, and folks have it.

Victor Mendelson: Sheila?

Sheila Kahyaoglu: Yes.

Sheila Kahyaoglu: You still there?

Victor Mendelson: You still there?

Sheila Kahyaoglu: Yeah, I'm here.

Sheila Kahyaoglu: You didn't ask, but scrambled egg whites, avocado toast and smoked salmon.

Victor Mendelson: You didn't ask, but scrambled egg whites, avocado toast and smoked salmon.

Operator: Sticking to healthy, I see. Okay, good to see. Thank you very much for that update.

Sheila Kahyaoglu: Sticking to healthy, I see. Okay, good to see. Thank you very much for that update.

Speaker #7: Sticking to healthy, I see. Okay, good to see. Thank you very much for that update.

Speaker #2: You're welcome. That's the most important part.

Victor Mendelson: The most important part.

Speaker #7: Yep, it was. Thank you.

Sheila Kahyaoglu: Yep, it was. Thank you.

Speaker #2: Thanks.

Victor Mendelson: Thanks.

Speaker #1: I will take our next question from John Godin with Citigroup.

Victor Mendelson: We'll take our next question from Jason Gursky with Citigroup.

Operator: We'll take our next question from Jason Gursky with Citigroup.

Speaker #8: Hey guys, thanks for taking my question. Obviously, HEICO has a long heritage in PMA, aerospace, and aftermarket, but more and more, the other exposures that the company has seem to be expressing themselves and really showing through in the numbers.

Jason Gursky: Hey, guys. Thanks for taking my question. HEICO has a long heritage in PMA aerospace aftermarket, but more and more, the other exposures that the company seem to be expressing themselves and really showing through in the numbers. I was just hoping we could spend an extra minute on the outlook for HEICO's exposure to other fast-growing themes that are out there that are not aerospace aftermarket. Things like missiles, space, IGT, the last couple of quarters is something that came up around the edges, maybe drone components or anything else you'd flag. It just feels like we're entering a world where some of the other business lines in HEICO that are historically small may be really starting to see dramatic growth that actually moves the needle.

John Godyn: Hey, guys. Thanks for taking my question. HEICO has a long heritage in PMA aerospace aftermarket, but more and more, the other exposures that the company seem to be expressing themselves and really showing through in the numbers. I was just hoping we could spend an extra minute on the outlook for HEICO's exposure to other fast-growing themes that are out there that are not aerospace aftermarket. Things like missiles, space, IGT, the last couple of quarters is something that came up around the edges, maybe drone components or anything else you'd flag. It just feels like we're entering a world where some of the other business lines in HEICO that are historically small may be really starting to see dramatic growth that actually moves the needle.

Speaker #8: I was just hoping we could spend an extra minute on the outlook for HEICO's exposure to other fast-growing themes that are out there that are not aerospace aftermarket. Things like missiles, space, IGT—the last couple of quarters, that's something that has come up around the edges.

Speaker #8: Maybe drone components or anything else you'd flag. It just feels like we're entering a world where some of the other business lines in HEICO that are historically small may be really starting to see dramatic growth that actually moves the needle.

Speaker #3: Yeah.

Eric Mendelson: Yeah. Jason, this is Victor. Absolutely. Those areas are ones that we've been focused on for quite a long time. We talk about drones, for example, and we've been serving in various ways the drone market in a serious way, by the way, in very serious ways, going back to, I don't know, probably before 2008, 2007, before they were kind of a household name. We've continued to evolve with that, in both sides, both the ETG and the FSG, and with both electronic components, electro-optical components, as well as structural components like composites.

Victor Mendelson: Yeah. Jason, this is Victor. Absolutely. Those areas are ones that we've been focused on for quite a long time. We talk about drones, for example, and we've been serving in various ways the drone market in a serious way, by the way, in very serious ways, going back to, I don't know, probably before 2008, 2007, before they were kind of a household name. We've continued to evolve with that, in both sides, both the ETG and the FSG, and with both electronic components, electro-optical components, as well as structural components like composites.

Speaker #2: John, this is Victor. Absolutely. And those areas are ones that we've been focused on for quite a long time. And we talk about drones, for example.

Speaker #2: And we've been serving in various ways the drone market, in a serious way, by the way, in very serious ways, going back to—I don't know—probably before 2008, 2007, before they were kind of a household name.

Speaker #2: And we've continued to evolve with that, in both sides—both the ETG and the FSG—and with both electronic components, electro-optical components, as well as structural components like composites and others.

Victor Mendelson: Others. I'll add, that has expanded. It's not just the historical mainstays of the market, which do remain strong for us, but now we're serving the newer defense tech space, and that is a growing business for us. I would say defense tech represents for us probably what defense tech, as a proportion, defense tech represents to the overall market in revenues at this point. But we're there and we're on those and we're very proud and excited. Obviously, I can't tell you which ones. I don't want to get into that for competitive reasons.

Speaker #2: And I'll add that it's expanded. It's not just the historical mainstays of the market, which do remain strong for us, but now we're serving the newer defense tech space.

Speaker #2: And that is a growing business for us. I would say defense tech represents for us probably what defense tech is as a proportion—defense tech represents to the overall market in revenues at this point.

Speaker #2: But we're there, and we're on those. And we're very proud and excited. Obviously, I can't tell you which ones. I don't want to get into that for competitive reasons.

Speaker #2: In terms of missiles and missile defense, we've seen—and I think I mentioned this in our last call—we're on a lot of different programs there, both, again, in ETG and FSG, have been historically, and we have instances where our customers have come to us and asked us to prepare to 10X our production in some cases, contracted with us already and said, "Okay, you need to double, or triple, or even quadruple our output." So it's kind of all over the place.

Victor Mendelson: In terms of missiles and missile defense, we have seen, I think I mentioned in our last call, we are on a lot of different programs there, both again, in ETG and FSG have been historically. We have instances where our customers have come to us and asked us to prepare to 10x our production. In some cases, contracted with us already and said, "You need to double or triple or even four times." So it is kind of all over the place, but a lot of growth in those markets. Then adding on the industrial tech side, we are definitely seeing an effect from AI, data center construction, and so on. How long that goes on, our sense is it has legs, that this is not just a one-year blip.

Speaker #2: But a lot of growth in those markets. And then, adding on the industrial tech, we're definitely seeing an effect from AI, data center construction, and so on.

Speaker #2: How long that goes on? Our sense is it has legs, that this is not just a one-year blip. And we have a lot of components that we make in a number of subsidiaries that are used in various quantities there.

Victor Mendelson: We have a lot of components that we make in a number of subsidiaries that are used in various quantities there. So we feel like we are participating in that as well. Of course, space, commercial space, defense space is embedded within our defense markets. Just first talking about commercial space, we all read the same things. That market is growing tremendously. There is a great deal that is happening there. Our components are on those. We are staying, I believe, ahead of the curve with that. Even in defense space, opportunities like Golden Dome, there are instances where we suspect we are on Golden Dome, it has not been confirmed, and in some instances, we feel certain that it is Golden Dome related. If you look at HEICO, final comment, we do not look for the single magic silver bullet. It is mixing metaphors here, singles and doubles.

Speaker #2: So we feel like we're participating in that as well. And, of course, space—commercial space, defense space—is embedded within our defense markets. But just first, talking about commercial space, we all read the same things: that market is growing.

Speaker #2: Tremendously, there's a great deal that's happening there. Our components are on those. We're staying, I believe, ahead of the curve with that. And even in defense space, opportunities like Golden Dome—there are instances where we suspect we're on Golden Dome, but it hasn't been confirmed.

Victor Mendelson: Our components are on those. We are staying, I believe, ahead of the curve with that. Even in defense space, opportunities like Golden Dome, there are instances where we suspect we are on Golden Dome, it has not been confirmed, and in some instances, we feel certain that it is Golden Dome related. If you look at HEICO, final comment, we do not look for the single magic silver bullet. It is mixing metaphors here, singles and doubles.

Speaker #2: And in some instances, we feel certain that it's Golden Dome-related. So, if you look at HEICO—final comment—we don't look for the single magic silver bullet.

Speaker #2: It's mixing metaphors here—singles and doubles. And it's this very steady growth rate. We're looking for that 15% to 20% bottom line growth each year.

Victor Mendelson: It is this very steady growth rate. We are looking for that 15% to 20% bottom line growth each year. We are not looking, frankly, it is a controlled growth strategy. We are not looking to grow 50% one year and then only 5% the next and have a volatile situation. So we manage it, and we manage it very carefully.

Speaker #2: And we're not looking, frankly, it's a controlled growth strategy. We're not looking to grow 50% one year and then only 5% the next, and have a volatile situation.

Speaker #2: So we manage it, and we manage it very carefully. And then, also, just to add with regard to the IGT area, of course, you're aware of the Ethos acquisition that we made earlier this year.

Jason Gursky: Yeah.

John Godyn: Yeah.

Eric Mendelson: Also, just to add

Jason Gursky: Go ahead.

John Godyn: Go ahead.

Eric Mendelson: With regard to the IGT area, of course, you are aware of the Ethos acquisition that we made earlier this year, and we are very excited about their repair capabilities for the IGT market. We think that there is a lot of potential there for obvious reasons. We are also seeing orders not only in our Ethos IGT repair business, but we are also seeing orders for IGT products within our other parts business.

Speaker #2: And we're very excited about their repair capabilities for the IGT market, and we think that there's a lot of potential there for obvious reasons.

Speaker #2: And we're also seeing orders, not only in our Ethos IGT repair business, but we're also seeing orders for IGT products within our other parts business.

Jason Gursky: That was great color. I certainly do not expect you guys to break out organic growth for each of those business lines, but at a high level, is it fair to say that the organic growth behind those themes is leading HEICO? I am just trying to understand what you guys are seeing and if we are hitting that S-curve in some of these businesses. It seems like we may be.

John Godyn: That was great color. I certainly do not expect you guys to break out organic growth for each of those business lines, but at a high level, is it fair to say that the organic growth behind those themes is leading HEICO? I am just trying to understand what you guys are seeing and if we are hitting that S-curve in some of these businesses. It seems like we may be.

Speaker #8: That was great color, and I certainly don't expect you guys to break out organic growth for each of those business lines. But at a high level, is it fair to say that the organic growth behind those themes is leading HEICO?

Speaker #8: I'm just trying to understand what you guys are seeing, and if we're hitting that S-curve in some of these businesses. It seems like we may be.

Speaker #3: Yeah. I think that there's a lot of potential. As I mentioned in Sheila's answer to Sheila's question, our defense revenue organic growth, for example, over on the Flight Support side, was extremely strong—in the upper 20s.

Eric Mendelson: Yeah, I think that there is a lot of potential, as I mentioned in Sheila's answer, Sheila's question, that our defense revenue, organic growth, for example, over in the Flight Support Group side was extremely strong in the upper 20s. So that is leading the way right now, but we see strength across all of the markets.

Speaker #3: So that's leading the way right now, but we see strength across all of the markets.

Speaker #8: Same old pattern.

Jason Gursky: Great. Thanks, guys.

John Godyn: Great. Thanks, guys.

Speaker #3: Thank you.

Eric Mendelson: Thank you.

Speaker #2: Similarly, in the ETG, defense and aerospace seem to be leading the way on growth.

Victor Mendelson: Similar in ETG, defense and aerospace seem to be leading the way on growth.

Carlos Macau: Similar in ETG, defense and aerospace seem to be leading the way on growth.

Speaker #1: And we'll take our next question from Ron Epstein with Bank of America.

Victor Mendelson: We will take our next question from Ron Epstein with Bank of America.

Operator: We will take our next question from Ron Epstein with Bank of America.

Speaker #5: Yeah. Hey. Good morning, guys.

Ron Epstein: Yeah. Hey, good morning, guys.

Speaker #2: Good morning, Ron.

Eric Mendelson: Good morning, Ron.

Speaker #5: A couple of quick ones for you. Everything's kind of coming up roses right now, which is great. But is there anything that worries you?

Ron Epstein: A couple of quick ones for you. Everything's kind of coming up roses right now, which is great, but is there anything that worries you? Are there any areas where you're spending a little more time just making sure that kind of everything's lining up the way you want? How are your supply chains doing? How is your labor front? Is there anything else, like Canada and what's going on there, that you're just trying to have a strategy around in case something goes awry? What are you spending your time on trying to solve? Because it seems like everything else is going just great.

Speaker #5: Are there any areas where you're spending a little more time just making sure that everything's lining up the way you want? How are your supply chains doing?

Speaker #5: How is your labor front? Is there anything else, like Canada and what's going on there, that you're just trying to have a strategy around in case something goes awry?

Speaker #5: So, what are you spending your time on trying to solve? It seems like everything else is going just great.

Speaker #2: Yeah. Ron, this is Victor, and Eric will answer as well. But in terms of where we're spending our time, I would say it's in the traditional ways and the traditional places.

Victor Mendelson: Ron, this is Victor Mendelson, and Eric Mendelson will answer it as well. But in terms of where we're spending our time, I would say it's in the traditional ways and the traditional places. There's nothing that particularly stands out that's unusual. It's somewhat prosaic, but the basic blocking and tackling in the business and making sure that we're doing all the things we should be doing on taking care of customers, and our people, and acquisitions, and capital structure, et cetera. But the areas that are ones we watch but don't really have much control over, of course, are the geopolitical ones, right?

Speaker #2: There's nothing that particularly stands out as unusual. It's somewhat prosaic, but it's the basic blocking and tackling in the business, and making sure that we're doing all the things we should be doing in taking care of customers and our people.

Speaker #2: And acquisitions and capital structure, etc., etc. But the areas that are ones we watch but don't really have much control over, of course, are like the geopolitical ones, right? Where, is there a spike—a short-term spike—in oil prices?

Victor Mendelson: Where is there a short-term spike in oil prices, or is there some short-term issue that we may have to deal with, where it is hard really to plan for. We generally look at it that we are not going to run the business for those short-term interests, and we are going to keep running it for that long-term view. Hiring-wise, I would say it is about the same as it was. It has been challenging hiring great people and bringing great people into an organization. It has not gotten easier, but I do not think it has gotten worse. Right now, with AI and things like that, our anticipation is that labor situation shouldn't be a problem. There is inflation in input costs, and we have to be able to pass those on. I think a lot of that is driven by the AI market.

Speaker #2: Or is there some short-term issue that we may have to deal with, where it's really hard to plan for? And we generally look at it that we're not going to run the business for those short-term issues, and we're going to keep running it with that long-term view.

Speaker #2: Hiring-wise, I would say it's about the same as it was. It's been challenging hiring great people and bringing great people into an organization. It hasn't gotten easier, but I don't think it's gotten worse.

Speaker #2: And right now, with AI and things like that, our anticipation is that the labor situation shouldn't be a problem. There is inflation in input costs, and we have to be able to pass those on.

Speaker #2: And I think a lot of that is driven by the AI market. We do notice anecdotally that there is just kind of a broad smattering of parts, components, and subcomponents.

Victor Mendelson: We do notice anecdotally that there are just kind of a broad smattering of parts and components and sub-components and raw materials that are pushing out in lead times and becoming more expensive. The challenges our companies are facing a little more are planning for those. They are getting out a little longer on orders for their materials to make sure that does not impact them. It is nothing pronounced yet, but I would say that is something at least I am kind of keeping an eye on, because I hear these stories anecdotally, but very proud of the way our companies are dealing with it.

Speaker #2: And raw materials that are pushing out in lead times and becoming more expensive, so the challenges our companies are facing are a little more. We're planning for those.

Speaker #2: So, they're getting out a little longer on orders for their materials to make sure that doesn't impact them. It's nothing pronounced yet, but I would say that's something, at least, I'm kind of keeping an eye on because I hear these stories anecdotally. But I'm very proud of the way our companies are dealing with it.

Speaker #2: And Ron, the other thing that I would add is that we've got a very mature team. We've been doing this for a long time, and we've seen a lot of market dislocations, and we've learned from that.

Eric Mendelson: Ron, the other thing that I would add is that we have got a very mature team. We have been doing this for a long time, and we have seen a lot of market dislocations, and we have learned from that. Whether it is 9/11, and SARS, or the global financial crisis, or COVID, we know what happens. We have seen this movie before, unfortunately, where things can go wrong where no one expects it. That is why we work very hard to set up this organization that we have got, which is a decentralized organization where people really understand their markets very well, and they are close to their customers. If you look at any of those dislocations, HEICO has been far more resilient and bounced back quicker than typically others in the industry.

Speaker #2: Whether it's a 9/11, SARS, the global financial crisis, or COVID, we know what happens. We've seen this movie before, unfortunately, where things can go wrong when no one expects it.

Speaker #2: And that's why we work very hard to set up this organization that we've got, which is a decentralized organization where people really understand their markets very well, and they're close to their customers.

Speaker #2: And if you look at any of those dislocations, HEICO has been far more resilient and bounced back quicker than typically others in the industry.

Speaker #2: And I believe it's, again, due to the HEICO people, the HEICO structure, our DNA, which causes the business to be very resilient. And Victor spoke about the various geopolitical events.

Eric Mendelson: I believe it is, again, due to the HEICO people, the HEICO structure, our DNA, which causes the business to be very resilient. Victor spoke about the various geopolitical events. I think that is obviously the greatest risks, which they always are. But I feel very confident that the HEICO team is well-prepared for whatever the future may bring. Frankly, when we look at the numbers and the projections going forward, we are extremely optimistic.

Speaker #2: I think that's obviously the greatest risk, which they always are. But I feel very, very confident that the HEICO team is well prepared for whatever the future may bring.

Speaker #2: And, frankly, when we look at the numbers and the projections going forward, we're extremely optimistic. We're very—go ahead.

Ron Epstein: Gotcha.

Eric Mendelson: Yeah.

Ron Epstein: Gotcha.

Eric Mendelson: We're very

Ron Epstein: Maybe just

Eric Mendelson: Go ahead.

Speaker #5: Yeah. Maybe just another follow-on. How are you guys thinking about, or do you not at all—but just curious if you do—be it that you've been so good at traditional M&A?

Ron Epstein: Yeah, maybe just another follow-on. How are you guys thinking about, or do you, not at all, but just curious if you do, be it that you've been so good at traditional M&A, how do you think about corporate venture capital? Given what's going on in, call it aerospace tech and defense tech and otherwise, have you guys thought of making bets there or not? Is that kind of outside of what you normally do? Have you thought about it? I'm just curious what you think.

Speaker #5: How do you think about corporate venture capital? Given what's going on in, call it, aerospace tech, defense tech, and otherwise, have you guys thought of making bets there or not?

Speaker #5: Is that kind of outside of what you normally do? Have you thought about it? Just curious what you think.

Speaker #2: Yeah, this is Victor. As an overarching observation, I don't see us setting up a venture fund and having a kind of venture tech arm, as other companies do, because we don't see that being in our remit broadly at this point.

Victor Mendelson: Yeah, this is Victor. As an overarching observation, I don't see us setting up a venture fund, having a kind of a venture tech arm as other companies do, because we don't see that as being in our remit broadly at this point. But having said that, we have invested in a handful of companies for strategic reasons that are venture tech investments, and that have worked out very well. We didn't do it just for the return. It wasn't sort of like we're betting on Anthropic or something like that. It was because we needed something they were making, or we wanted the relationship, and we wanted to be part of it. I think we'll continue to do that very carefully, very strategically, without becoming a VC fund.

Speaker #2: But having said that, we have invested in a handful of companies for strategic reasons that were venture tech investments, and that have worked out very well.

Speaker #2: We didn't do it just for the return. It wasn't sort of like, we're betting on Anthropic or something like that. It was because we needed something they were making, or we wanted the relationship, and we wanted to be part of it.

Speaker #2: So I think we'll continue to do that very carefully, very strategically, without becoming a VC fund.

Speaker #5: Got it. Got it. All right, guys, thank you very much, and have a good day.

Ron Epstein: Got it. All right, guys. Thank you very much, and have a good day.

Speaker #2: Thank you. You too.

Eric Mendelson: Thank you.

Victor Mendelson: Thank you. You too.

Speaker #1: And we'll take our next question from John Zigman with Stifel.

Victor Mendelson: And we'll take our next question from Jonathan Siegmann with Stifel.

Operator: And we'll take our next question from Jonathan Siegmann with Stifel.

Speaker #6: Hey, good morning, guys. This is Sebastian Rivera on for John today. Maybe just quickly: last quarter you had mentioned these Dow framework agreements were still being worked out.

Sebastian Rivera: Hey, good morning, guys. This is Sebastian Rivera on for John today. Maybe just quickly, last quarter you had mentioned these DoD framework agreements were still being worked out and not sure where they'd land, and that capacity investments around that would be anchored on kind of having those concrete LTAs in hand. Is there any update you can maybe note there?

Speaker #6: And not sure where they'd land. And that capacity investments around that would be anchored on kind of having those concrete LTAs in hand. Is there any update?

Speaker #6: Could maybe note there.

Speaker #2: Yeah. So we're beginning to see some of those come to fruition. I think there's a lot more to go, but we've definitely seen some POs and contracts appearing for the multiple—I'll call it the multiplier effect—that I mentioned earlier in one of my other answers.

Victor Mendelson: Well, so we're beginning to see some of those come to fruition. I think there's a lot more to go, but we've definitely seen some POs

Eric Mendelson: and contracts appearing for the, I'll call them the multiplier effect that I mentioned earlier in one of my other answers, and I would expect that to continue for some time.

Victor Mendelson: and contracts appearing for the, I'll call them the multiplier effect that I mentioned earlier in one of my other answers, and I would expect that to continue for some time.

Speaker #2: And I would expect that to continue for some time.

Speaker #6: And then maybe to kind of piggyback on Sheila's question, can you maybe just quantify how much Wencore has kind of enabled the margin step up year to date in FSG and kind of what inning you guys are in in terms of kind of like that PMA content replacement opportunity?

Sebastian Rivera: And then maybe to kind of piggyback on Sheila's question, can you maybe just quantify how much Wencor has kind of enabled the margin step up year to date in FSG and kind of what inning you guys are in terms of kind of like that PMA content replacement opportunity?

Speaker #2: Yeah. I don't know specifically that Wencor has created the margin step-up opportunity. We always thought that there were synergies that could be achieved.

Eric Mendelson: Yeah, I don't know specifically that Wencor has created the margin step-up opportunity. We always thought that there were synergies that could be achieved, and we've been able to get them and that certainly has helped. I think there's a lot more that the businesses can do together and to guess what inning we're in, that's hard to say, but maybe the fifth inning. I think we still have got plenty more to go. Depending on if certain plans and objectives and thoughts come into play, it could be the second inning. But we're working on all that now. But it's been a phenomenal combination, and I'm very excited about the future for the combined company.

Speaker #2: And we've been able to get them, and that certainly has helped. I think there's a lot more that the businesses can do together. And to guess what inning we're in, that's hard to say.

Speaker #2: But maybe it's the fifth inning. I think we've still got plenty more to go. And depending on if certain plans and objectives and thoughts come into play, it could be the second inning.

Speaker #2: So, we're working on all that now, but it's been a phenomenal combination, and I'm very excited about the future for the combined company.

Speaker #6: I'll turn it over. Congrats on the strong quarter.

Sebastian Rivera: I'll turn it over. Congrats on the strong quarter.

Speaker #2: Thank you. Thank you.

Eric Mendelson: Thank you.

Eric Mendelson: And we'll take our next question from Pete Skibitsky with Alembic Global.

Operator: And we'll take our next question from Pete Skibitsky with Alembic Global.

Speaker #1: And we'll take our next question from Pete Skibitzky with Olympic Global.

Speaker #7: Hey, good morning, everyone. Nice quarter. A little bit of a follow-on to the last question, guys. With one quarter left in fiscal '26, I'm just trying to think about the levers still available to you to drive organic growth in FSG, specifically in commercial, when we think about kind of maybe slowing global air traffic growth.

Pete Skibitsky: Hey, good morning, everyone. Nice quarter. A little bit of a follow-on to the last question, guys. With one quarter left in fiscal 2026, I am just trying to think about the levers still available to you to drive organic growth in FSG, specifically in commercial, when we think about kind of maybe slowing global air traffic growth. I was wondering if you can kind of walk through maybe the opportunity still available in market share gains, new product introductions, maybe even pricing and whatever other levers you feel like are available to you to kind of drive organic growth in commercial at FSG in kind of a flattening traffic environment. Thanks.

Pete Skibitski: Hey, good morning, everyone. Nice quarter. A little bit of a follow-on to the last question, guys. With one quarter left in fiscal 2026, I am just trying to think about the levers still available to you to drive organic growth in FSG, specifically in commercial, when we think about kind of maybe slowing global air traffic growth. I was wondering if you can kind of walk through maybe the opportunity still available in market share gains, new product introductions, maybe even pricing and whatever other levers you feel like are available to you to kind of drive organic growth in commercial at FSG in kind of a flattening traffic environment. Thanks.

Speaker #7: I was wondering if you can kind of walk through maybe the opportunity still available in market share gains and new product introductions, maybe even pricing, and whatever other levers you feel are available to you to kind of drive organic growth in commercial at FSG, in kind of a flattening traffic environment.

Speaker #7: Thanks.

Speaker #2: Well, there's a lot of, I would say, unsold potential throughout the entire business. And there's a lot more revenue I think that we can get.

Eric Mendelson: Well, there is a lot of, I would say, unsolved potential throughout the entire business. There is a lot more revenue I think that we can get. Frankly, our customers are very excited about what we are offering, both on the independent as well as the OEM aligned side. I think that there is a tremendous amount of opportunity in those areas. I can tell you in speaking with our business leadership and our sales leadership, they are very excited going forward. So, we have got customers with all sorts of big ideas, and we are going to be here to support them. I would say it is just the standard HEICO playbook. Nothing different than it has been for the last decade.

Speaker #2: Frankly, our customers are very excited about what we are offering, both on the independent as well as the OEM-aligned side. I think that there's a tremendous amount of opportunity in those areas.

Speaker #2: And I can tell you, in speaking with our business leadership and our sales leadership, they're very, very excited going forward. So we've got customers with all sorts of big ideas.

Speaker #2: And we're going to be here to we're going to be here to support them. So I would say it's just the standard Heiko playbook.

Speaker #2: Nothing different than it's been for the last decade.

Speaker #7: Okay, great. Maybe just one follow-up, Eric. I'm curious, as global air traffic continues to shift to Asia—it's obviously been moving in that direction, but it continues to do so.

Pete Skibitsky: Okay, great. Maybe just one follow-up, Eric. I am curious, as kind of global air traffic kind of shifts to Asia, it has been going in that direction, obviously, but continues to. Do you guys have any thought about opening more repair stations in Asia to capture some of the demand there, or is location not really as relevant to commercial aftermarket as with your positioning?

Pete Skibitski: Okay, great. Maybe just one follow-up, Eric. I am curious, as kind of global air traffic kind of shifts to Asia, it has been going in that direction, obviously, but continues to. Do you guys have any thought about opening more repair stations in Asia to capture some of the demand there, or is location not really as relevant to commercial aftermarket as with your positioning?

Speaker #7: Do you guys have any thoughts about opening more repair stations in Asia to capture some of the demand there, or is location not really as relevant to commercial aftermarket as with your positioning?

Speaker #2: Yeah, we've been able to do very well in commercial aftermarket with our positioning. We're always looking at various opportunities, but I'd rather not get into the specifics of that.

Eric Mendelson: Yeah. We have been able to do very well in commercial aftermarket with our positioning. We are always looking at various opportunities. I would rather not get into the specifics of that, but we have been highly successful in our approach. We have got multiple sales offices over there, very deep relationships. I think our customers are very happy with what we have got. We also have operations in Asia, not component overhaul, but other operations in Asia, which are very helpful. I think time will tell what we end up doing in that area.

Speaker #2: But we've been highly successful in our approach. We've got multiple sales offices over there, very deep relationships, and I think our customers are very happy with what we've got.

Speaker #2: We've got—we also have operations in Asia; not component overhaul, but other operations in Asia, which are very helpful. So I think time will tell what we end up doing in that area.

Speaker #7: Okay. Thanks, guys.

Pete Skibitsky: Okay. Thanks, guys.

Pete Skibitski: Okay. Thanks, guys.

Speaker #2: Thank you.

Eric Mendelson: Thank you.

Carlos Macau: Thank you.

Speaker #3: Thanks, Pete.

Pete Skibitsky: Thanks, Pete.

Victor Mendelson: Thanks, Pete.

Speaker #1: And we'll take our next question from Scott Mikus with Melius Research.

Pete Skibitsky: We'll take our next question from Scott Mikus with Melius Research.

Operator: We'll take our next question from Scott Mikus with Melius Research.

Speaker #5: Good morning, Eric and Victor. Very good results. Seems like there's a lot of demand across all your verticals. We also saw Deputy Secretary of Defense Steve Feinberg issue a memo asking defense companies to accelerate production of various defense programs.

Scott Mikus: Morning, Eric and Victor. Very good results. Seems like there's a lot of demand across all your verticals. We also saw Deputy Secretary of Defense, Stephen Feinberg, issue a memo asking defense companies to accelerate productions of various defense programs. Just curious how you're thinking about organic investments within the business, and particularly CapEx, given that your customers are asking you to expedite shipments, but your backlog continues to grow.

Speaker #5: So, just curious how you're thinking about organic investments within the business, and particularly CapEx, given that your customers are asking you to expedite shipments but your backlog continues to grow.

Speaker #2: Yeah. So, as a general rule of thumb, this is not leading to a material change in our CapEx. Fortunately, the things we make and the way we make them tend to be smaller, incremental items—like a spectrum analyzer, a few pieces of test equipment, or a paint booth, or something like that.

Eric Mendelson: Well, as a general rule of thumb, this is not leading to a material change in our CapEx. Fortunately, the things we make and the way we make them, they tend to be smaller incremental items, like a spectrum analyzer or a few pieces of test equipment or a paint booth or something like that. There are some instances where we will invest more, but if you look at our CapEx, we're spending, what, about a point and a half on CapEx. I don't see that rising materially. If it got up to 2%, that would still be pretty manageable or extremely manageable for us.

Victor Mendelson: Well, as a general rule of thumb, this is not leading to a material change in our CapEx. Fortunately, the things we make and the way we make them, they tend to be smaller incremental items, like a spectrum analyzer or a few pieces of test equipment or a paint booth or something like that. There are some instances where we will invest more, but if you look at our CapEx, we're spending, what, about a point and a half on CapEx. I don't see that rising materially. If it got up to 2%, that would still be pretty manageable or extremely manageable for us.

Speaker #2: There are some instances where we will invest more. But if you look at our CapEx, we're spending, what, about a point and a half on CapEx.

Speaker #2: I don't see that rising materially. And if it got up to 2%, that would still be pretty manageable—or extremely manageable—for us. We are committed to making the investments that are needed.

Victor Mendelson: We are committed to making the investments that are needed. We will do that. We have made that very clear to our customers. At this point, I still, as I said, I emphasize that I do not see that being a Herculean task. If there are ones that do require a much larger investment, we feel like our customers or somebody should contribute to that, then of course, we will not have any reservations about seeking that.

Speaker #2: We will do that. We've made that very clear to our customers. And at this point, as I said, I emphasize that I don't see that as being a Herculean task.

Speaker #2: If there are ones that do require a much larger investment and we feel like our customers or somebody should contribute to that, then, of course, we won't have any reservations about seeking that.

Speaker #4: And I would also add, without going into specifics, that we are big supporters of what the administration is trying to do and of getting more product out there.

Eric Mendelson: I would also add, without going into specifics, that we are big supporters of what the administration is trying to do and get more product out there. We are working very hard. We have got a number of teams very much focused on this. There are certain areas where we are going ahead and making the CapEx, where we have a very high degree of confidence of the level of business. We are, if you will, taking the risk to make sure that we are able to supply the product when the customer needs it. I think that our customers are extremely happy about that.

Speaker #4: And we're working very hard. We've got a number of teams very much focused on this. And there are certain areas where we are going ahead and making the capital expenditures where we have a very high degree of confidence in the level of business.

Speaker #4: And, if you will, taking the risk to make sure that we're able to supply the product when the customer needs it. I think that our customers are extremely happy about that.

Speaker #5: Okay. And then to follow up on Noah's question earlier on acquisitions and the potential size of deals, we've seen a lot of aerospace and defense IPOs break their IPO prices.

Scott Mikus: Okay. Then to follow up on Noah's question earlier on acquisitions and the potential size of deals, you have seen a lot of aerospace defense IPOs break their IPO prices. Has that caused any shift in the M&A pipeline for sponsors that were thinking about taking assets public or maybe thinking about pursuing a sale to a company like HEICO that is usually an acquirer of choice?

Speaker #5: Does that cause any shift in the M&A pipeline for sponsors that were thinking about taking assets public, or maybe thinking about pursuing a sale to a company like HEICO, that is usually an acquirer of choice?

Speaker #2: Yeah. Listen, I don't think it's had a material impact on the number of companies we're seeing and the desires of sellers. Most don't want to get into sort of private equity situations.

Victor Mendelson: Listen, I do not think it has had a material impact on the number of companies we are seeing and the desires of sellers. Most do not want to get into sort of with the private equity situations. It certainly has influenced valuations. Valuations, as you know, have increased in the sector. That is something that we deal with. We have dealt with it successfully. I would say that would probably be the most pronounced impact.

Speaker #2: But it certainly has influenced valuations, and valuations, as you know, have increased in the sector. That's something that we deal with, and we've dealt with it successfully.

Speaker #2: But I would say that would probably be the most pronounced impact.

Eric Mendelson: And also my sense is that if some of these don't go well or don't go as well as expected, that could be a future opportunity for HEICO.

Speaker #4: And also, my sense is that if some of them don't go well or don't go as well as expected, that could be a future opportunity for HEICO.

Speaker #5: All right. Thank you.

Scott Mikus: All right. Thank you.

Speaker #4: Thank you.

Eric Mendelson: Thank you.

Speaker #1: And we'll take our next question from David Strauss with Wells Fargo.

Eric Mendelson: We'll take our next question from David Strauss with Wells Fargo.

Operator: We'll take our next question from David Strauss with Wells Fargo.

Speaker #6: Hi, good morning. This is Josh Kordon for David. I wanted to ask if you could speak a little bit about what the margins look like on some of the revenues from the recent acquisitions.

Eric Mendelson: Hi, good morning. This is Josh Core. I am for David. Wanted to ask if you could speak a little bit about what the margins look like on some of the revenues from the recent acquisitions. Thanks.

Josh Korn: Hi, good morning. This is Josh Core. I am for David. Wanted to ask if you could speak a little bit about what the margins look like on some of the revenues from the recent acquisitions. Thanks.

Speaker #6: Thanks.

Carlos Macau: You want me to take it? Yeah. We generally do not disaggregate down to the sub-level margins. I will tell you that when we make acquisitions, our expectations are that most of the deals we close, the EBITA margin needs to be 20% or greater. That is sort of a gaining factor in our thesis or our analysis of acquisitions. That is about as far down the food chain as we get on discussing margins at the subsidiary level, or starting point anyhow.

Speaker #2: Do you want me to take that? We generally don't disaggregate down to the sub-level of margins. I will tell you that, when we make acquisitions, our expectations are that for most of the deals we close, the EBITDA margin needs to be 20% or greater.

Speaker #2: That's sort of a gating factor in our thesis or our analysis of acquisitions. So that's about as far down the food chain as we get on discussing margins at the subsidiary level, or starting point, anyhow.

Eric Mendelson: But one of the things we can tell you is that typically, acquisitions have intangible amortization attached to it. So obviously that can typically push down sometimes the reported margin.

Speaker #4: But one of the things we can tell you is that, typically, acquisitions have intangible amortization attached to them. So, obviously, that can sometimes push down the reported margin.

Speaker #2: Yeah.

Carlos Macau: Yeah.

Speaker #4: Yeah, not on the EBITDA or EBITA level, but the operating income margin.

Eric Mendelson: Yeah.

Eric Mendelson: Okay. Thank you.

Josh Korn: Okay. Thank you.

Eric Mendelson: Not on the EBITDA or EBITA level, but the operating income margin.

Speaker #6: Okay, thank you. I'll stick to just one.

Eric Mendelson: Okay. Thank you. I will stick to just one.

Josh Korn: Okay. Thank you. I will stick to just one.

Speaker #4: Thank you.

Eric Mendelson: Thank you.

Speaker #2: Thank you.

Carlos Macau: Thank you.

Speaker #1: And we'll take our next question from Renee Blessner with Renee Blessner Associates.

Carlos Macau: And we'll take our next question from Rene Plessner with Rene Plessner Associates.

Operator: And we'll take our next question from Rene Plessner with Rene Plessner Associates.

Speaker #5: Hello?

Rene Plessner: Hello.

René Plessner: Hello.

Speaker #2: Hello.

Speaker #4: Good morning, Renee.

Eric Mendelson: Good morning, Rene.

Speaker #5: Good morning. How are you? Excellent, excellent. Results. I just wanted to call in because I did a little homework. In all of 1995, HEICO earned $2.7 million.

Rene Plessner: Good morning. How are you? Excellent results. I just wanted to call in because I did a little homework. In all of 1995, HEICO earned $2.7 million. In the latest nine months, it earned $659 million. That's 244 times as much profit, and the year isn't finished. I bought it in 1995. Cash flow was $7 million versus today, $816 million in only nine months. If the future is going to follow the same playbook, Eric, that you referred to, I hope I live another 30 years. That's my statement for the day.

René Plessner: Good morning. How are you? Excellent results. I just wanted to call in because I did a little homework. In all of 1995, HEICO earned $2.7 million. In the latest nine months, it earned $659 million. That's 244 times as much profit, and the year isn't finished. I bought it in 1995. Cash flow was $7 million versus today, $816 million in only nine months. If the future is going to follow the same playbook, Eric, that you referred to, I hope I live another 30 years. That's my statement for the day.

Speaker #5: In the latest nine months, it earned $659 million. That's 244 times as much profit. And the year isn't finished. I bought it in 1995.

Speaker #5: Cash flow was $7 million versus today, $816 million, in only nine months. So if the future is going to follow the same playbook, Eric, that you referred to, I hope I live another 30 years.

Speaker #5: That's my statement for today.

Victor Mendelson: Well, we hope you live another 30 years as well. I hope for the same thing for me at least. Thank you very much. For the rest of the people on this call who don't know Mr. Plessner, Mr. Plessner is an individual investor who in 1994 really started learning about the company, invested in 1995, and added to his holdings over the years, despite the advice from a lot of financial experts who said, "You need to diversify." He is actually a very large shareholder in the company, and has always been committed to it. He's made his money in it. I won't say how much, but it's obviously a huge sum. Sorry for saying that, Rene. Obviously a huge sum, but he's made it by-

Speaker #2: Well, we hope you live another 30 years as well. And I hope for the same thing for me at least. But for the rest of the people on the thank you very much and for the rest of the people on this call who don't know, Mr. Plessner, Mr. Plessner is an individual investor who in 1994 really started learning about the company.

Speaker #2: He invested in '95 and added to his holdings over the years despite the advice from a lot of financial experts who said, "You need to diversify and diversify and diversify." He is actually a very large shareholder in the company.

Speaker #2: And has always been committed to it. And he's made his money. And I won't say how much, but it's obviously a huge sum. Sorry for saying that, Renee.

Speaker #2: But obviously, a huge sum. But he's made it by believing in the business and following this. And we take the same approach, the same way we do it—believing in the people and the business, the long term, and not getting too wrapped up in any momentary movement in either direction.

Carlos Macau: Believing in the business and following this, the same approach, the same way we do it, believing in the people, in the business, the long term, not getting too wrapped up in any momentary movement in either direction. We thank you for being one of the smartest investors I have ever met.

Victor Mendelson: Believing in the business and following this, the same approach, the same way we do it, believing in the people, in the business, the long term, not getting too wrapped up in any momentary movement in either direction. We thank you for being one of the smartest investors I have ever met.

Speaker #2: So, thank you for being one of the smartest investors I've ever met.

Speaker #4: And, Renee, this is Eric. I add my thanks and gratitude as well for your support, confidence, and friendship over many, many decades. And to answer specifically your question, I remember talking to you about it thirty-something years ago.

Eric Mendelson: Rene, this is Eric. I add my thanks and gratitude as well for your support, confidence, and friendship over many, many decades. To answer specifically your question, I remember talking to you about it 30-something years ago, and we had a dream on what we could do.

Speaker #4: And we had a dream about what we could do. And we thought if we were responsive, and we found some opportunities where we could really help the airlines, that we could build something.

Carlos Macau: Right.

Victor Mendelson: Right.

Eric Mendelson: We thought if we were responsive, we found some opportunities where we could really help the airlines, that we could build something. It turned out to be obviously even more successful than we had dreamt at the time. I can tell you that our customers universally want to buy more from HEICO. The reason they are not currently buying more from HEICO is we only have so much to offer them. Frankly, we had a sales meeting last week, and somebody stood up and said, "People are not buying from our competitors because they want to buy from our competitors." Nobody starts out their day saying they want to buy from HEICO's competitors.

Speaker #4: And it turned out to be, obviously, even more successful than we had dreamt at the time. But I can tell you that our customers universally want to buy more from HEICO.

Speaker #4: And the reason they don't—they aren't currently buying more from HEICO is we only have so much to offer them. And frankly, we had a sales meeting last week, and somebody stood up and said, "People aren't buying from our competitors because they want to buy from our competitors." Nobody starts out their day saying they want to buy from HEICO's competitors.

Eric Mendelson: The vast majority of our customers start their day wanting to buy more from us, and it is because of our people, our quality, our pricing, and frankly, the vision that we had to build a long-term business, not a one-and-done or where you run up the stock and run out the door, that kind of thing. We wanted to build a serious industrial company that was going to last for generations. I can tell you we are well on the way. Who knows what the future holds? I can tell you that the three of us at this table and our leadership and the 13,000 people at HEICO are really, really excited about the future. I thank you for your support, comment, and friendship.

Speaker #4: The vast majority of our customers start their day wanting to buy more from us. And it's because of our people, our quality, our pricing, and, frankly, the vision that we had to build a long-term business—not a one-and-done, or where you run up the stock and run out the door, that kind of thing.

Speaker #4: We wanted to build a serious industrial company that was going to last for generations, and I can tell you we're well on the way.

Speaker #4: Who knows what the future holds? But I can tell you that the three of us at this table and our leadership—and the 13,000 people at HEICO—are really, really excited about the future.

Speaker #4: So I thank you for your support, your comments, and your friendship.

Speaker #5: Thank you. Thank you. And go on to your next caller, and today’s a great day.

Rene Plessner: Thank you. Thank you, and go on to your next caller, and today's a great day.

René Plessner: Thank you. Thank you, and go on to your next caller, and today's a great day.

Speaker #2: Thank you.

Eric Mendelson: Thank you.

Victor Mendelson: Thank you.

Speaker #5: Talk to you guys soon. You're welcome. You're welcome.

Carlos Macau: Thank you, Rene.

Eric Mendelson: Thank you, Rene.

Rene Plessner: Talk to you guys soon. You are welcome. You are welcome.

René Plessner: Talk to you guys soon. You are welcome. You are welcome.

Speaker #4: Thank you. Thanks.

Eric Mendelson: Thank you. Thanks.

Speaker #1: And we'll take our next question from Gavin Parsons with UBS.

Eric Mendelson: We will take our next question from Gavin Parsons with UBS.

Operator: We will take our next question from Gavin Parsons with UBS.

Speaker #7: Good morning. That's a tough one to follow. I guess in a more trivial pursuit, it sounds like repair is still growing a good amount slower.

Gavin Parsons: Good morning. That is a tough one to follow. I guess in a more trivial pursuit, it sounds like repair is still growing a good amount slower. Eric, is that the supply chain bottlenecks you talked about last quarter? Any color there would be great.

Speaker #7: Eric, is that the supply chain bottleneck you talked about last quarter? Any color there would be great.

Speaker #2: Yeah. I'm glad you mentioned that, Gavin. That is also a big issue for us—the ability to get parts in various areas. When you've got a component and you could have 99 parts, but you're waiting for the final part, you can't ship it.

Eric Mendelson: Well, I am glad you mentioned that, Gavin. That is also a big issue for us, the ability to get parts in various areas. When you have got a component and you could have 99 parts, but you are waiting for the final part, you cannot ship it. There is definitely a backlog about that throughout our businesses. That also has definitely had an impact on the component repair space. Thank you for highlighting that.

Speaker #2: And there is definitely a backlog about that throughout our businesses. And that also has definitely had an impact on the component repair space. Thank you for highlighting that.

Speaker #7: Is that improving, or has that actually gotten worse?

Gavin Parsons: Is that improving or has that actually gotten worse?

Eric Mendelson: I would say it's consistent, not materially better. It's gotten better in some areas. The problems that we had a year ago in general are not problems today, but other things have popped up. As a result, it remains definitely a major headache for the industry and definitely has impacted those revenues.

Speaker #2: I would say it's consistent—not materially better. It's gotten better in some areas. The problems that we had a year ago, in general, are not problems today.

Speaker #2: But other things have popped up, and so as a result, it remains definitely a major headache for the industry and definitely has impacted those revenues.

Speaker #5: Thank you.

Speaker #4: Gavin, this is Carlos. Keep in mind the gross margin on that business has been expanding. And even though the revenue growth— you have to remember that as we flood these repairs, component repairs consume a lot of parts.

Carlos Macau: Gavin, this is Carlos. Keep in mind, the gross margin on that business has been expanding, and even though the revenue growth, you have to remember that as we flood these repairs, component repairs consume a lot of parts, as Eric just pointed out. As we are able to populate those repairs with more PMA product, the top-line revenue does not grow as fast because we're offering a higher value proposition to our customers. The profitability on that job grows. One thing that we've been experiencing in our repair business is a little lighter top-line revenue growth because we're not passing through the exorbitant cost of OEM product onto our customers. We're trying to do these repairs as much as we can with PMA. It has a lower sales price, but it's a much more profitable venture for us.

Speaker #4: As Eric just pointed out, and as we are able to populate those repairs with more PMA product, the top-line revenue does not grow as fast because we're offering a higher value proposition to our customers.

Speaker #4: The profitability on that job grows. And so, one thing that we've been experiencing in our repair business is a little lighter top-line revenue growth because we're not passing through the exorbitant cost of OEM product onto our customers.

Speaker #4: We're trying to do these repairs as much as we can with PMA, which has a lower sales price, but it's a much more profitable venture for us.

Speaker #4: And I actually think that this pattern will continue. And if it does, we'll be very happy for that because, again, it's more cash to HEICO shareholders in that relationship versus passing on OEM product.

Carlos Macau: I actually think that this pattern will continue. If it does, we'll be very happy for that because, again, it's more cash to HEICO shareholders in that relationship versus passing on OEM product through the sales and charging a higher price. I don't know if that makes sense, but that's the phenomenon going on right now in that business.

Speaker #4: Through the sales and by charging a higher price. I don't know if that makes sense, but that's the phenomenon going on right now in that business.

Speaker #7: Yep. Okay. Thanks. That's very helpful. I appreciate it.

Gavin Parsons: Yep. Okay. Thanks. That's very helpful. Appreciate it.

Speaker #1: And we'll take our next question from Christine Luwak with Morgan Stanley.

Gavin Parsons: We'll take our next question from Kristine Liwag with Morgan Stanley.

Operator: We'll take our next question from Kristine Liwag with Morgan Stanley.

Speaker #2: Hello, Christine.

Eric Mendelson: Hello, Kristine?

Speaker #8: Hi. Hi. Can you hear me?

Eric Mendelson: Hi.

Shaina Zuber: Hi.

Eric Mendelson: It seems like

Eric Mendelson: Hi, can you hear me?

Shaina Zuber: Hi, can you hear me?

Speaker #2: Yes. Now we can.

Eric Mendelson: Yes. Now we can.

Eric Mendelson: Sorry about that. This is Sheena Zuber on for Kristine. Thanks for taking my question. Just to double-click on air traffic a little bit. There has been a lot of focus this year on how commercial aftermarket would hold up, and obviously this and last quarter's results display significant growth despite these concerns. But in the last couple of months of data, we are starting to see RPKs dip a little bit on a year-over-year basis. If we continue to see this, is there a point at which you would expect to start seeing this flow through to impact the commercial side of the business?

Shaina Zuber: Sorry about that. This is Sheena Zuber on for Kristine. Thanks for taking my question. Just to double-click on air traffic a little bit. There has been a lot of focus this year on how commercial aftermarket would hold up, and obviously this and last quarter's results display significant growth despite these concerns. But in the last couple of months of data, we are starting to see RPKs dip a little bit on a year-over-year basis. If we continue to see this, is there a point at which you would expect to start seeing this flow through to impact the commercial side of the business?

Speaker #8: Sorry about that. This is Shana Zuber on for Christine. Thanks for taking my question. Just to double-click on air traffic a little bit—there's been a lot of focus this year on how commercial aftermarket would hold up.

Speaker #8: And obviously, this and last quarter's results display significant growth despite these concerns. But in the last couple of months of data, we're starting to see RBKs dip a little bit on a year-over-year basis.

Speaker #8: If we continue to see this, is there a point at which you'd expect to start seeing this flow through to impact the commercial side of the business?

Speaker #4: Yeah. Thus far, we haven't seen that. And the other thing is, when RPKs do slow down, airlines get even more serious about cost savings.

Eric Mendelson: Yeah, thus far we have not seen that. The other thing is when RPKs do slow down, airlines get even more serious about cost savings. So that will be a mitigating factor. But certainly, if the number of flights is down, then the demand for parts would follow. But I would point out we have got so much unsold potential and so much opportunity out there that we typically mitigate that much better than most in the industry. Again, we have not seen that to date.

Speaker #4: So, that will be a mitigating factor. But certainly, if the number of flights is down, then the demand for parts would follow. But I'd point out we've got so much unsold potential and so much opportunity out there that we typically mitigate that much better than most in the industry.

Speaker #4: So, again, we haven't seen that to date.

Speaker #8: Great, thanks. That's it for me.

Eric Mendelson: Great, thanks. That is it from me.

Shaina Zuber: Great, thanks. That is it from me.

Speaker #4: Thank you.

Eric Mendelson: Thank you.

Speaker #1: And we'll take our next question from Adam Connell with TD Cowen.

Eric Mendelson: We will take our next question from Gautam Khanna with TD Cowen.

Operator: We will take our next question from Gautam Khanna with TD Cowen.

Speaker #9: Hi, good morning. This is Barrett Taylor on for Gotham. Thanks for taking my question. I was wondering if the DOD has approached the HEICO team directly regarding the right to repair and build-to-print initiatives.

Eric Mendelson: Hi, good morning. This is Barrett Taylor on for Gautam. Thanks for taking my question. I was wondering if the DoD has approached the HEICO team directly regarding the right to repair and build to print initiatives. Could you provide any insight on how involved industry participants have been in those discussions? Thanks.

Barrett Taylor: Hi, good morning. This is Barrett Taylor on for Gautam. Thanks for taking my question. I was wondering if the DoD has approached the HEICO team directly regarding the right to repair and build to print initiatives. Could you provide any insight on how involved industry participants have been in those discussions? Thanks.

Speaker #9: And then, could you provide any insight on how involved industry participants have been in those discussions? Thanks.

Speaker #2: Yes, I can say that we’re very aware of what’s going on. I wouldn’t want to get into any specific conversations. But again, we do think that there’s very good opportunity for HEICO in this area.

Eric Mendelson: Yeah, I can say that we are very aware of what is going on. I wouldn't want to get into any specific conversations. But again, we do think that there is very good opportunity for HEICO in this area. You know all the reasons why, so I think it is best probably just to leave it at that. But thank you very much.

Victor Mendelson: Yeah, I can say that we are very aware of what is going on. I wouldn't want to get into any specific conversations. But again, we do think that there is very good opportunity for HEICO in this area. You know all the reasons why, so I think it is best probably just to leave it at that. But thank you very much.

Speaker #2: You know all the reasons why, so I think it's best to just leave it at that. But thank you very much.

Speaker #9: Okay, great. Thank you, and congrats on the quarter.

Eric Mendelson: Okay, great. Thank you. Congrats on the quarter.

Barrett Taylor: Okay, great. Thank you. Congrats on the quarter.

Speaker #2: Thank you.

Eric Mendelson: Thank you.

Victor Mendelson: Thank you.

Speaker #1: And we'll take our next question from Matt Akers with BNP Paribas.

Eric Mendelson: We will take our next question from Matt Akers with BNP Paribas.

Operator: We will take our next question from Matt Akers with BNP Paribas.

Speaker #10: Hey, good morning, guys. Thanks for the question. Can you touch on working capital? It's been—I mean, to your point, your free cash flow has been very solid, even though working capital has been a bit of a drag.

Matt Akers: Hey, good morning, guys. Thanks for the question.

Eric Mendelson: Good morning.

Victor Mendelson: Good morning.

Matt Akers: Can you touch on working capital? To your point, your free cash flow has been very solid, even though working capital has been a bit of a drag year to date. Should we expect that to continue as you keep growing here, or is there an opportunity for some more working capital efficiencies there?

Speaker #10: Year to date, should we expect that to continue as you keep growing here, or is there an opportunity for some more working capital efficiencies there?

Speaker #4: I mean, this is Carlos, Matt. The working capital at HEICO is going to grow commensurate with organic growth. It's been kind of the pattern.

Carlos Macau: This is Carlos. Matt, working capital at HEICO is going to grow commensurate with our organic growth. It's been kind of the pattern. We do have some strategic investment in inventories to deal with customer demands and backlogs. So you saw that elevated this quarter. I expect working capital will not be any different in Q4 than what we saw this quarter. I think we'll have continued little bit of use of cash for working capital to fill backlog and demand, nothing unusual other than that going on.

Speaker #4: We do have some strategic investment in inventories to deal with customer demands and backlogs, so you saw that elevated this quarter. I expect working capital will not be any different in Q4 than what we saw this quarter.

Speaker #4: I think we'll have continued a little bit of use of cash for working capital to fill backlog and demand, and nothing unusual other than that going on.

Speaker #10: Good. Great, thanks. I'll leave it at one.

Matt Akers: Okay, great. Thanks. I'll leave it at one.

Speaker #4: The only other thing I would point out on our operating cash flows, as I've mentioned on prior calls, is that we do have a payment going out to the estate of our past Chairman and CEO.

Carlos Macau: The only other thing I would point out on our operating cash flows, I've mentioned on prior calls, is that we do have a payment going out to the estate of our past chairman and CEO, and that probably will have a $70 to $75 million drag on operating cash flows in Q4. We've talked about it before. I just point that out. I don't know if it's working capital related, but it is related to our operating cash flows in the fourth quarter. So please keep that in mind as you're doing your modeling.

Speaker #4: And that probably will have a $70 to $75 million drag on operating cash flows in Q4. We've talked about it before—I just point that out.

Speaker #4: It's not—I don't know if it's working capital related, but it is related to our operating cash flows in the fourth quarter. Please keep that in mind as you're doing your modeling.

Speaker #10: Yep. Thank you.

Matt Akers: Got it. Thank you.

Speaker #1: And we'll take our next question from Louis Rivado with Wolf Research.

Matt Akers: We'll take our next question from Louis Ravetto with Wolfe Research.

Operator: We'll take our next question from Louis Ravetto with Wolfe Research.

Speaker #11: Hey. Good morning, guys.

Matt Akers: Hey, good morning, guys.

Louis Raffetto: Hey, good morning, guys.

Speaker #2: Good morning.

Eric Mendelson: Good morning.

Victor Mendelson: Good morning.

Speaker #11: Maybe Victor, Eric, just to follow up on John's earlier question on the sort of the other end markets and the sort of some of the opportunities you see there.

Eric Mendelson: Maybe Victor, just to follow up on John's earlier question on the sort of the other end markets and sort of some of the opportunities you see there. Do you see those markets having the same margin opportunity as in aerospace?

Louis Raffetto: Maybe Victor, just to follow up on John's earlier question on the sort of the other end markets and sort of some of the opportunities you see there. Do you see those markets having the same margin opportunity as in aerospace?

Speaker #11: Do you see those markets having the same margin opportunity as in aerospace?

Speaker #2: Some do. And I think for some it's a mix, but they can. It all depends on the products. But we have some very strong margins in the industrial tech segment.

Eric Mendelson: Some do, and I think it's a mix, but they can. It all depends on the products. But we have some very strong margins in the industrial tech segment.

Victor Mendelson: Some do, and I think it's a mix, but they can. It all depends on the products. But we have some very strong margins in the industrial tech segment.

Speaker #4: And also, in particular, in industrial gas turbines, there's a lot of opportunity for us in that space as well—basically the same technologies. Louis, and we really don't have the fixed costs associated with it.

Carlos Macau: Also, in particular, in industrial gas turbine, there is a lot of opportunity for us in that space as well. Basically the same technologies, Louis, and we really do not have the fixed costs associated with it.

Victor Mendelson: Also, in particular, in industrial gas turbine, there is a lot of opportunity for us in that space as well. Basically the same technologies, Louis, and we really do not have the fixed costs associated with it.

Speaker #11: Great, thank you. And then maybe, Carlos, just one for you. The interest expense in the quarter—did that include incremental costs from the debt issuance?

Carlos Macau: Great. Thank you. Then maybe, Carlos, just one for you. The interest expense in the quarter, did that include incremental costs from the debt issuance?

Louis Raffetto: Great. Thank you. Then maybe, Carlos, just one for you. The interest expense in the quarter, did that include incremental costs from the debt issuance?

Speaker #4: It did. As with the debt issuance costs and the amortization of the costs related to the line of credit, that all went through interest this quarter.

Carlos Macau: It did. With the debt issuance costs and then the amortization of the cost related to the line of credit, that all went through interest this quarter.

Speaker #11: All right. Perfect. Thank you.

Carlos Macau: All right, perfect. Thank you.

Louis Raffetto: All right, perfect. Thank you.

Speaker #2: Thank you.

Eric Mendelson: Thank you.

Speaker #4: You're welcome.

Speaker #1: And at this time, I will turn the conference over to Victor Mendelson for any additional or closing remarks.

Eric Mendelson: At this time, I will turn the conference to Victor Mendelson for any additional or closing remarks.

Operator: At this time, I will turn the conference to Victor Mendelson for any additional or closing remarks.

Speaker #4: Thank you very much. We thank everybody for being on the call with us. For the remainder of fiscal '26, we expect increased net sales.

Victor Mendelson: Thank you very much. We thank everybody for being on the call with us. For the remainder of fiscal 2026, we expect increased net sales at both the Flight Support Group and Electronic Technologies Group to continue to be supported by underlying demand for our products and contributions from recent acquisitions. As for those acquisitions, we remain focused on identifying and evaluating the acquisition opportunities that align with our strategic objectives. Our capital allocation strategy will prioritize those investments in organic growth and acquisitions while preserving adequate liquidity and financial flexibility. As you heard, that acquisition activity remains extremely robust for us. As always, though, we will remain disciplined and only pursue acquisitions that meet our strategic and financial criteria that we believe will create meaningful long-term value for our shareholders.

Speaker #4: At both the Flight Support Group and Electronic Technologies Group, we continue to be supported by underlying demand for our products and contributions from recent acquisitions.

Speaker #4: As for those acquisitions, we remain focused on identifying and evaluating acquisition opportunities that align with our strategic objectives. Our capital allocation strategy will prioritize investments in organic growth and acquisitions, while preserving adequate liquidity.

Speaker #4: And financial flexibility. And as you heard, that acquisition activity remains extremely robust for us. As always, though, we'll remain disciplined and only pursue acquisitions that meet our strategic and financial criteria.

Speaker #4: That, we believe, will create meaningful long-term value for our shareholders. With that, we will end the call, and we look forward to talking with you on our next call.

Eric Mendelson: With that, we end the call, and we look forward to talking with you on our next call. Should you have questions in the interim, you all know where to reach us. Thank you very much.

Victor Mendelson: With that, we end the call, and we look forward to talking with you on our next call. Should you have questions in the interim, you all know where to reach us. Thank you very much.

Speaker #4: And should you have questions in the interim, you all know where to reach us. Thank you very much.

Eric Mendelson: This concludes today's call. Thank you for your participation. You may now disconnect.

Operator: This concludes today's call. Thank you for your participation. You may now disconnect.