Q1 2026 Heico Corp Earnings Call

February 26, 2026

Samara: Welcome to the HEICO Corporation Q1 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.

Operator: Welcome to the HEICO Corporation Q1 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 #3: 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 #3: 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 costs to complete contracts; governmental and regulatory demands; export policies and restrictions; reductions in defense, space, or homeland security spending by U.S.

Samara: 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. 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.

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. Our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth, product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales.

Speaker #3: 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; 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.

Samara: 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. 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: 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. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law.

Speaker #3: 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 #3: We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law.

Speaker #3: I now turn the call over to Eric Mendelson, HEICO's Co-Chief Executive Officer. Thank you, Zamara, and good morning to everyone on this call. Thank you for joining us, and we welcome you to this HEICO FIRST QUARTER FISCAL 26 EARNINGS ANOUNCEMENT TELECONFERENCE.

Samara: I now turn the call over to Eric Mendelson, HEICO's Co-chief Executive Officer.

Operator: I now turn the call over to Eric Mendelson, HEICO's Co-chief Executive Officer.

Eric Mendelson: Thank you, Samara. Good morning to everyone on this call. Thank you for joining us. We welcome you to this HEICO Q1 Fiscal 2026 Earnings Announcement Teleconference. I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I am joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO, and Carlos Macau, our Executive Vice President and CFO. We received many nice comments about Victor's extemporaneous remarks as he opened our last conference call to discuss HEICO's 2025 Q4 results. We thought our listeners would appreciate a little insight into HEICO before we discuss HEICO's 2026 Q1 results. Obviously, HEICO's 2026 Q1 results reflect continued growth. We are very proud of them, especially considering that only 36 years ago, HEICO had only $25 million in revenue, $2 million in earnings, and 200 team members.

Speaker #3: I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I am joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO, and Carlos Mical, our Executive Vice President and CFO.

Speaker #3: We received many nice comments about Victor's extemporaneous remarks as he opened our last conference call to discuss HEICO's 2025 Fourth Quarter results, so we thought our listeners would appreciate a little insight into HEICO before we discuss HEICO's 2026 First Quarter results.

Speaker #3: Obviously, HEICO's 2026 First Quarter results reflect continued growth, and we are very proud of them, especially considering that only 36 years ago HEICO had only 25 million in revenue, 2 million in earnings, and 200 team members.

Speaker #3: Our dad, Victor, and I would often question ourselves how was our 36-year 23% compound annual growth rate in share price possible, especially when we were rarely leveraged at more than two times EBITDA.

Eric Mendelson: Our dad, Victor, and I would often question ourselves, how was our 36 year, 23% compound annual growth rate in share price possible, especially when we were rarely leveraged at more than 2x EBITDA? EBITDA. First, we have to thank God for these results. Second, we realized that dad always had a saying, Do the right thing, which was our mantra 24/7, 365 for the past 36 years. It wasn't just a saying, it was embedded in every single decision, every part sold or repaired, every company acquired, and simply everything we did. Obedience to the unenforceable became our DNA from the time Victor and I were small children to now, when we are 60 and 58 years old. Doing the right thing means making honorable choices when nobody's looking.

Speaker #3: First, we have to thank God for these results. But second, we realized that, Dad, always had a saying, "Do the right thing." Which was our mantra 24/7, 365, for the past 36 years.

Speaker #3: It wasn't just a saying; it was embedded in every single decision, every part sold or repaired, every company acquired, and simply everything we did.

Speaker #3: Obedience to the unenforceable became our DNA from the time Victor and I were small children to now when we are 60 and 58 years old.

Speaker #3: Doing the right thing means making honorable choices when nobody's looking. It means spending tens of millions of dollars on quality systems, not because our customers or regulators require them, but because we know it's a good investment that protects our brand.

Eric Mendelson: It means spending tens of millions of dollars on quality systems, not because our customers or regulators require them, but because we know it's a good investment that protects our brand. It means properly reserving for obsolete or excess inventory, not because our auditors require it, but because we know it's needed, and mistakes must be learned from, recognized, learned from, and never repeated, not swept under the rug in order to protect reported earnings. These are just two of the many things that HEICO has done routinely over decades, and why we've never had a one-time unusual charge to earnings, whereby the economic earnings of the upcycle are largely erased following a black swan event, and investors don't realize much of the earnings never existed in the first place.

Speaker #3: It means properly reserving for obsolete or excess inventory, not because our auditors require it, but because we know it's needed and mistakes must be learned from, recognized, learned from, and never repeated.

Speaker #3: Not swept under the rug in order to protect reported earnings. These are just two of the many things that HEICO has done routinely over decades and why we've never had a one-time unusual charge to earnings whereby the economic earnings of the upcycle are largely erased following a black swan event and investors don't realize much of the earnings never existed in the first place.

Speaker #3: Considering our terrific results, we're even more proud of them given the added costs that many people don't appreciate but everyone benefits from in the long run.

Eric Mendelson: Considering our terrific results, we're even more proud of them, given the added costs that many people don't appreciate, but everyone benefits from in the long run. HEICO was built for long-term and sustainable cash generation, which permits our earnings and cash flow to compound decade after decade, not just year after year. We are not into programs of the year, buzzwords, or comparing ourselves to others, hoping to get a higher multiple on our shares. We're designed for long-term, challenging, but sustainable earnings increases. I hope this provided a little insight into HEICO's secret sauce as you listen to our Q1 results. Before reviewing our operating results in detail, I want to take a moment to thank and recognize all of the people who made our excellent performance possible. HEICO's sustained growth and consistent profitability result directly from our team members' talent, dedication, and hard work.

Speaker #3: HEICO was built for long-term and sustainable cash generation which permits our earnings and cash flow to compound decade after decade not just year after year.

Speaker #3: We are not into programs of the year, buzzwords, or comparing ourselves to others hoping to get a higher multiple on our shares. We're designed for long-term challenging but sustainable earnings increases.

Speaker #3: I hope this provided a little insight into HEICO's secret sauce as you listen to our First Quarter results. Before reviewing our operating results in detail, I want to take a moment to thank and recognize all of the people who made our excellent performance possible.

Speaker #3: HEICO's sustained growth and consistent profitability result directly from our team members' talent, dedication, and hard work. Our team members drive our success and differentiate us from other companies.

Eric Mendelson: Our team members drive our success and differentiate us from other companies. Thank you all for all of your continued commitment and for contributing to another strong, outstanding quarter. We are very proud of the Q1 results, which reflect consolidated margin expansion, record net income, and strong increases in operating income and net sales. We remain very bullish and optimistic about HEICO's ability to win new opportunities in fiscal 2026 and continue our growth, profitability, and strong cash generation legacy. To summarize the highlights of our Q1 of fiscal 2026 record results: consolidated net income increased 13% to a record $190.2 million, or $1.35 per diluted share in the Q1 of fiscal 2026, up from $168 million or $1.20 per diluted share in the Q1 of fiscal 2025.

Speaker #3: Thank you all for all of your continued commitment and for contributing to another strong outstanding quarter. We are very proud of the First Quarter results, which reflect consolidated margin expansion, record net income, and strong increases in operating income and net sales.

Speaker #3: We remain very bullish and optimistic about HEICO's ability to win new opportunities in FISCAL 26 and continue our growth, profitability, and strong cash generation legacy.

Speaker #3: To summarize the highlights of our First Quarter of FISCAL 26 record results, consolidated net income increased 13% to a record $190.2 million or $1.35 per diluted share in the first quarter of FISCAL 26, up from $168 million or $1.20 per diluted share in the first quarter of FISCAL 25.

Speaker #3: Consolidated operating income and net sales in the first quarter of FISCAL 26 improved by 15% and 14% respectively as compared to the first quarter of FISCAL 25.

Eric Mendelson: Consolidated operating income and net sales in Q1 of fiscal 2026 improved by 15% and 14%, respectively, as compared to Q1 of fiscal 2025. Net income attributable to HEICO in Q1 of fiscal 2026 and 2025 were both favorably impacted by a discrete income tax benefit from stock option exercises. The benefit in Q1 of fiscal 2026, net of non-controlling interests, was $21.8 million, or $0.15 per diluted share, as compared to $26.5 million or $0.19 per diluted share in Q1 of fiscal 2025. By the way, that means we got a higher benefit from the discrete income tax benefit from stock options last year as compared to this year.

Speaker #3: Net income attributable to HEICO in the first quarter of FISCAL 26 and 25 were both favorably impacted by a discrete income tax benefit from stock option exercises.

Speaker #3: The benefit in the first quarter of FISCAL 26, net of non-controlling interests, was $21.8 million or 15 cents per diluted share as compared to 26.5 million or 19 cents per diluted share in the first quarter of FISCAL 25.

Speaker #3: By the way, that means we got a higher benefit from the discrete income tax benefit from stock options last year as compared to this year.

Speaker #3: The flight support group delivered strong results in operating income and net sales, achieving quarterly increases of 21% and 15% respectively as compared to the first quarter of FISCAL 25.

Eric Mendelson: The Flight Support Group delivered strong results in operating income and net sales, achieving quarterly increases of 21% and 15%, respectively, as compared to the Q1 of fiscal 2025. The increases principally reflect strong organic growth of 12%, driven by increased demand across all of Flight Support Group's product lines, as well as the contributions from our fiscal 2025 acquisitions. The Electronic Technologies Group net sales improved 12% as compared to the Q1 of fiscal 2025. The increase principally reflects strong organic growth of 6%, driven by increased demand across most of our products, as well as contributions from our fiscal 2025 and 2026 acquisitions. Cash flow provided by operating activities was $178.6 million in the Q1 of fiscal 2026.

Speaker #3: The increases principally reflect strong organic growth of 12% driven by increased demand across all of flight support group's product lines as well as the contributions from our FISCAL 25 acquisitions.

Speaker #3: The electronic technologies group net sales improved 12% as compared to the first quarter of FISCAL 25. The increase principally reflects strong organic growth of 6% driven by increased demand across most of our products as well as contributions from our FISCAL 25 and 26 acquisitions.

Speaker #3: Cash flow provided by operating activities was $178.6 million in the first quarter of FISCAL 26. Operating cash flow for the quarter was negatively impacted by distributions of approximately $22.7 million to a long-term team member over 40 years and participant in the HEICO leadership compensation plan, the LCP.

Eric Mendelson: Operating cash flow for the quarter was negatively impacted by distributions of approximately $22.7 million to a long-term team member, over 40 years, and participant in the HEICO Leadership Compensation Plan, the LCP. The LCP is fully funded. All sources of cash for these distributions are derived from investments in corporate-owned life insurance policies, which are considered investing cash inflows within our statement of cash flows. As a result, the LCP distributions are not an actual use of cash. We will have another large LCP distribution during the remainder of fiscal 2026 of approximately $73 million, which will negatively impact operating cash flows. However, since the LCP, as I said, is fully funded, the distribution will continue to be net cash neutral to HEICO.

Speaker #3: The LCP is fully funded and all sources of cash for these distributions are derived from investments in corporate-owned life insurance policies which are considered investing cash inflows within our statement of cash flows.

Speaker #3: As a result, the LCP distributions are not an actual use of cash. We will have another large LCP distribution during the remainder of FISCAL 26 of approximately $73 million.

Speaker #3: Which will negatively impact operating cash flows; however, since the LCP as I said is fully funded, the distribution will continue to be net cash neutral to HEICO.

Speaker #3: Consolidated EBITDA increased 14% to $312 million in the first quarter of fiscal 2026, up from $273.9 million in the first quarter of fiscal 2025.

Eric Mendelson: Consolidated EBITDA increased 14% to $312 million in Q1 of fiscal 2026, up from $273.9 million in Q1 of fiscal 2025. Our net debt to EBITDA ratio was 1.79x as of 31 January 2026, as compared to 1.6x as of 31 October 2025. The increase in our leverage ratio is a direct result of the successful completion of an acquisition during Q1. Acquisition activity in both operating segments remains very strong, with a very healthy pipeline of opportunities. We continue to target complementary businesses that align strategically and financially, focusing on disciplined, accretive transactions that enhance HEICO's long-term value. In January 2026, we paid our regular semiannual cash dividend of $0.12 per share. This represented our 95th consecutive semiannual cash dividend since 1979.

Speaker #3: Our net debt to EBITDA ratio was 1.79 times as a result as of January 31, 26 as compared to 1.6 times as of October 31, 25.

Speaker #3: The increase in our leverage ratio is a direct result of the successful completion of an acquisition during the first quarter. Acquisition activity in both operating segments remains very strong with a very healthy pipeline of opportunities.

Speaker #3: We continue to target complementary businesses that align strategically and financially focusing on disciplined accretive transactions that enhance HEICO's long-term value. In January 26, we paid our regular semi-annual cash dividend of $0.12 per share.

Speaker #3: This represented our 95th consecutive semi-annual cash dividend since 1979. Now, I'd like to take a moment to discuss our recent acquisition activity. In January, our electronic technologies group acquired $100% of Axelon Aerospace's fuel containment business which was renamed RockMart Fuel Containment.

Eric Mendelson: Now, I'd like to take a moment to discuss our recent acquisition activity. In January, our Electronic Technologies Group acquired 100% of Axillon Aerospace's fuel containment business, which was renamed Rockmart Fuel Containment. Rockmart designs and manufactures advanced fuel containment solutions, primarily for military, fixed, and rotary wing aircraft. The purchase price of this acquisition was paid in cash using proceeds from our revolving credit facility. We are very excited that Rockmart has joined the HEICO family. We are very excited about their future contribution to HEICO's earnings. Earlier this month, the Flight Support Group acquired 100% of Ethos Energy Group Limited. Ethos provides repair solutions for engine components and accessories for various industrial gas turbine, aeroderivative gas turbine, aerospace, and defense engine platforms.

Speaker #3: RockMart designs and manufactures advanced fuel containment solutions primarily for military fixed and rotary wing aircraft. The purchase price of this acquisition was paid in cash using proceeds from our evolving credit facility and we are very excited that RockMart has joined the HEICO family and we are very excited about their future contribution to HEICO's earnings.

Speaker #3: Earlier this month, the flight support group acquired 100% of Ethos Energy Group Limited. Ethos provides repair solutions for engine components and accessories for various industrial gas turbine aeroderivative gas turbine aerospace and defense engine platforms.

Speaker #3: I'm sure everyone on this call is keenly aware of the tremendous increase in demand for power caused by the exponential demand in AI or artificial intelligence and LLMs or large language model adoption.

Eric Mendelson: I'm sure everyone on this call is keenly aware of the tremendous increase in demand for power caused by the exponential demand in AI, or artificial intelligence, and LLMs, or large language model adoption. This power is largely expected to be created through the use of industrial gas turbines and aeroderivative gas turbines. HEICO is obviously excited to enter this market and bring our technical capability and OEM relationships to serve this growing power demand. We believe HEICO's acquisition of Ethos provides us with the perfect platform to sell our high-quality repair solutions to satisfy these rapidly growing needs. The purchase price of this acquisition was paid with a combination of cash using proceeds from our revolving credit facility and shares of HEICO Class A common Stock.

Speaker #3: In this power is largely expected to be created through the use of industrial gas turbines and aeroderivative gas turbines. HEICO is obviously excited to enter this market and bring our technical capability and OEM relationships to serve this growing power demand.

Speaker #3: And we believe HEICO's acquisition of Ethos provides us with the perfect platform to sell our high-quality repair solutions to satisfy these rapidly growing needs.

Speaker #3: The purchase price of this acquisition was paid with a combination of cash using proceeds from our evolving credit facility and shares of HEICO Class A common stock.

Speaker #3: And this week, the flight support group entered into an agreement to acquire 80% of the stock of a company that provides a range of services for commercial aviation and defense component platforms.

Eric Mendelson: This week, the Flight Support Group entered into an agreement to acquire 80% of the stock of a company that provides a range of services for commercial aviation and defense component platforms. Closing is subject to governmental approval and standard closing conditions and is expected to occur in Q2 of fiscal 2026. The remaining 20% will continue to be owned by certain members of the seller's management team. We expect these acquisitions to be accretive to our earnings within the year following the acquisition. I now turn the call over to Victor Mendelson, HEICO's other Co-Chairman and Co-CEO, to discuss the Q1 results of our Flight Support and Electronic Technologies Groups in further detail.

Speaker #3: Closing is subject to governmental approval and standard closing conditions and is expected to occur in the second quarter of FISCAL 26. The remaining 20% will continue to be owned by certain members of the seller's management team.

Speaker #3: We expect these acquisitions to be accretive to our earnings within the year following the acquisition. I now turn the call over to Victor Mendelson, HEICO's other Co-Chairman and Co-CEO, to discuss the first quarter results of our Flight Support and Electronic Technologies Groups in further detail.

Speaker #1: Eric, thank you very much. Before we get into the details I echo what Eric mentioned at the outset of the call and thank our team members the HEICO team members the results were discussing today are a direct reflection of their talent, their discipline, and commitment to execution their collaboration and focus on excellence and all they do and all we do is truly inspiring.

Victor Mendelson: Eric, thank you very much. I echo what Eric mentioned at the outset of the call, and thank our team members, the HEICO team members. The results we're discussing today are a direct reflection of their talent, their discipline, and commitment to execution. Their collaboration and focus on excellence in all they do and all we do is truly inspiring. The Flight Support Group's net sales increased 15% to $820 million in Q1 of fiscal 2026, up from $713.2 million in Q1 of fiscal 2025. The net sales increase in Q1 of fiscal 2025 stems from strong organic growth of 12%, and the impact from our fiscal 2025 acquisitions. The organic net sales growth reflects increased demand across all of our product lines.

Speaker #1: The flight support group's net sales increased 15% to $820 million in the first quarter of FISCAL 26 up from $713.2 million in the first quarter of FISCAL 25.

Speaker #1: The net sales increase in the first quarter of FISCAL 25 stems from strong organic growth of 12% and the impact from our FISCAL 25 acquisitions.

Speaker #1: The organic net sales growth reflects increased demand across all of our product lines. The flight support group's operating income increased 21% to $200.7 million in the first quarter of FISCAL 25 up from $166.1 million in the first quarter of FISCAL 25.

Victor Mendelson: The Flight Support Group's operating income increased 21% to $200.7 million in Q1 of fiscal 2025, up from $166.1 million in Q1 of fiscal 2025. The operating income increase in Q1 of fiscal 2026 was principally driven by the previously mentioned net sales growth, SG&A expense efficiencies, realized from the net sales growth, and an improved gross profit margin. That improved gross profit margin principally resulted from the previously mentioned higher net sales, and a more favorable product mix within our repair and overhaul parts and services product lines. The Flight Support Group's operating margin improved to 24.5% in Q1, very impressive, in Q1 of fiscal 2026, up from 23.3% in Q1 of fiscal 2025.

Speaker #1: The operating income was principally driven by the previously mentioned net sales growth SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin.

Speaker #1: That improved gross profit margin principally resulted from the previously mentioned higher net sales and a more favorable product mix within our repair and overhaul parts and services product lines.

Speaker #1: The flight support group's operating margin improved to 24.5% in the first quarter very impressive in the first quarter of FISCAL 26 up from 23.3% in the first quarter of FISCAL 25.

Speaker #1: The increased operating margin in the first quarter of FISCAL 26 principally reflects a decrease in SG&A expenses as a percent of net sales mainly reflecting the previously mentioned SG&A expense efficiencies and improved gross margin.

Victor Mendelson: The increased operating margin in the Q1 of fiscal 2026 principally reflects a decrease in SG&A expenses as a % of net sales, mainly reflecting the previously mentioned SG&A expense efficiencies and improved gross margin. Acquisition-related intangible amortization expense consumed approximately 260 basis points of our operating income in the Q1 of fiscal 2026. The FSG's cash margin, before amortization, or EBITA, as we call it, was approximately 27.1%, which is excellent and has been consistently excellent, and is 110 basis points higher than the comparable FSG cash margin of 26% in the Q1 of 2025. Obviously, we are very happy with the continued operational excellence and improving cash generation demonstrated by the businesses in the FSG.

Speaker #1: Acquisition-related intangible amortization expense consumed approximately 260 basis points of our operating income in the first quarter of fiscal 2026. So the FSG's cash margin before amortization, or EBITA as we call it, was approximately 27.1%, which is excellent and has been consistently excellent, and is 110 basis points higher than the comparable FSG cash margin of 26% in the first quarter of 2025.

Speaker #1: Obviously, we are very, very happy with the continued operational excellence and improving cash generation demonstrated by the businesses in the FSG. Now turning to the first quarter results for the electronic technologies group the group's net sales increased 12% to $370.7 million in the first quarter of FISCAL 26 up from $330.3 million in the first quarter of FISCAL 25.

Victor Mendelson: Now, turning to the Q1 results for the Electronic Technologies Group. The group's net sales increased 12% to $370.7 million in the Q1 of fiscal 2026, up from $330.3 million in the Q1 of fiscal 2025. The net sales increase was occasioned by strong 6% organic growth and the impact from our fiscal 2025 and 2026 acquisitions. The organic net sales growth is mainly attributable to increased sales of our aerospace and defense, and other product, electronics products, partially offset by a decrease in space product sales. The Electronic Technologies Group's operating income was $73.2 million in the Q1 of fiscal 2026, as compared to $76.5 million in the Q1 of fiscal 2025.

Speaker #1: The net sales increase was occasioned by strong 6% organic growth and the impact from our fiscal 2025 and 2026 acquisitions. The organic net sales growth is mainly attributable to increased sales of our aerospace and defense and other product electronics products, partially offset by a decrease in space product sales.

Speaker #1: The electronic technologies group's operating income was 73.2 million in the first quarter of FISCAL 26 as compared to 76.5 million in the first quarter of FISCAL 25.

Speaker #1: That operating income decreased principally reflects a decrease in gross profit margin partially offset by the previously mentioned net sales growth. The decrease in gross profit margin and this is important resulted from a less favorable product mix of defense products and the previously mentioned decrease in net sales of space products partially offset by the previously mentioned increase in net sales of our aerospace products.

Victor Mendelson: That operating income decrease principally reflects a decrease in gross profit margin, partially offset by the previously mentioned net sales growth. The decrease in gross profit margin, and this is important, resulted from a less favorable product mix of defense products and the previously mentioned decrease in net sales of space products, partially offset by the previously mentioned increase in net sales of our aerospace products. As you know, quarterly margin variability in our ETG is consistent with the group's history. There are periods in which shipments of lower, though not low, margin products, are a greater proportion of our sales than in other quarters, which is predominantly based on shipment schedules. Based on our backlogs and our shipment plans, we expect the ETG margins to improve as the year progresses, particularly in the second half of the year.

Speaker #1: As you know quarterly margin variability in our ETG is consistent with the group's history and there are periods in which shipments of lower though not low margin products are a greater proportion of our sales than in other quarters.

Speaker #1: Which is prominent predominantly based on shipment schedules. Based on our backlogs and our shipment plans we expect the ETG margins to improve as the year progresses particularly in the second half of the year.

Speaker #1: The electronic technologies group's operating margin was 19.8% in the first quarter of FISCAL 25 as compared to 23.1% in the first quarter of FISCAL 25 excuse me 19.8% in the first quarter of FISCAL 26 as compared to 23.1% in the first quarter of FISCAL 25.

Victor Mendelson: The Electronic Technologies Group's operating margin was 19.8% in Q1 of fiscal 2025, as compared to 23.1% in Q1 of fiscal 2025. Excuse me, 19.8% in Q1 of fiscal 2026, as compared to 23.1% in Q1 of fiscal 2025. The decreased operating margin principally reflects the previously mentioned lower gross profit. You may recall that we experienced similar unfavorable mixes from time to time, including Q1 of fiscal 2024, and the rest of the year was quite healthy for us. We're expecting the same kind of thing this year. Importantly, before acquisition-related intangibles amortization expense, our operating margin was approximately 24%, as intangibles amortization consumes over 410 basis points of our margin.

Speaker #1: The decreased operating margin principally reflects the previously mentioned lower gross profit. And you may recall that we experienced similar unfavorable mixes from time to time including the first quarter of FISCAL 25 and the rest of the year was quite healthy for us.

Speaker #1: And we're expecting the same kind of thing this year. Importantly before acquisition-related intangibles amortization expense our operating margin was approximately 24% as intangibles amortization consumes over $410 basis points of our margin.

Speaker #1: And that is as you know how we judge our businesses and it most closely correlates to cash. On a true operating basis these are still excellent margins even though we would not be satisfied with them on a full year basis.

Victor Mendelson: That is, as you know, how we judge our businesses, and it most closely correlates to cash. On a true operating basis, these are still excellent margins, even though we would not be satisfied with them on a full year basis. The ETG strong margins resulted in another record backlog, demonstrating both strong demand for our products and robust end markets. Our shipments and shipment mix are typically uneven during the course of the year. We experienced some of that unevenness in our shipment mix this quarter, which was not a surprise and is a pattern we've often discussed on these calls and elsewhere. We are pleased with the quarter's organic growth and are particularly excited about the opportunities in defense, commercial aerospace, and space for the remainder of fiscal 2026.

Speaker #1: The ETG's strong margins resulted in another record backlog demonstrating both strong demand for our products and robust end markets. Our shipments and shipment mix are typically uneven during the course of the year we experienced some of that unevenness in our shipment mix this quarter which was not a surprise and is a pattern we've often discussed on these calls and elsewhere.

Speaker #1: We are pleased with the quarter's organic growth and are particularly excited about the opportunities in defense commercial aerospace and space for the remainder of FISCAL 26 and I should add that this optimism is supported by the record backlog and increasing order volumes we've experienced.

Victor Mendelson: I should add that this optimism is supported by the record backlog and increasing order volumes we've experienced. Thank you, and I turn the call back over to Eric.

Speaker #1: Thank you and I turn the call back over to Eric.

Speaker #2: Thank you Victor.

Eric Mendelson: Thank you, Victor. Our team is filled with optimism as we look at the remainder of fiscal 2026. We expect continued sales momentum in both Flight Support Group and the Electronic Technologies Group, supported by organic demand for our products, together with the impact of recent acquisitions. The current pro-business agenda in the United States continues to align well with our long-term goals, providing key markets like defense, space, and commercial aviation with a very strong tailwind in funding. We remain focused on pursuing selective acquisition opportunities that align with our growth strategy. Our disciplined focus to financial management continues to emphasize long-term shareholder value through a combination of strategic acquisitions and organic growth, while preserving financial strength and flexibility. Acquisition activity remains extremely robust across both business segments, supported by an outstanding pipeline of potential opportunities currently under evaluation.

Speaker #1: Our team is filled with optimism as we look at the remainder of FISCAL 26. We expect continued sales momentum in both flight support and the electronic technologies group.

Speaker #1: Supported by organic demand for our products, together with the impact of recent acquisitions. The current pro-business agenda in the United States continues to align well with our long-term goals, providing key markets like defense, space, and commercial aviation with a very strong tailwind in funding.

Speaker #1: We remain focused on pursuing selective acquisition opportunities that align with our growth strategy. Our disciplined focus to financial management continues to emphasize long-term shareholder value through a combination of strategic acquisitions and organic growth while preserving financial strength and flexibility.

Speaker #1: Acquisition activity remains extremely robust across both business segments, supported by an outstanding pipeline of potential opportunities currently under evaluation. Our acquisitions teams are busier than ever, working on these potential transactions, as one of HEICO's core strengths is identifying high-quality businesses that complement and reinforce our strategic positioning.

Eric Mendelson: Our acquisitions teams are busier than ever working on these potential transactions, as one of HEICO's core strengths is identifying high-quality businesses that complement and reinforce our strategic positioning. We believe HEICO is the preferred buyer for sellers seeking a great home for their businesses. Consistent with our long-standing acquisition philosophy, we will only pursue opportunities that meet our strict financial and strategic criteria, are accretive, and have the potential to generate durable, long-term value for our shareholders. We thank you for listening to this call. Now, Samara, if you'd like to open up the floor for questions, we're happy to answer them. Thank you.

Speaker #1: We believe HEICO is the preferred buyer for sellers seeking a great home for their businesses. Consistent with our long-standing acquisition philosophy we will only pursue opportunities that meet our strict financial and strategic criteria are a creative and have the potential to generate durable long-term value for our shareholders.

Speaker #1: We thank you for listening to this call. And now, Samara, if you'd like to open up the floor for questions, we're happy to answer them.

Speaker #1: Thank you.

Speaker #3: Thank you if you would like to ask a question please signal by pressing star one 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.

Samara: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one 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 star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one 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 #3: Again press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Larry Solo with CJS Securities.

Speaker #4: Great. Thanks. Good morning everybody. I guess first question for Victor just I think maybe the ETG putting a little pressure on the shares this morning.

Larry Solow: Great. Thanks. Good morning, everybody. I guess, first question for Victor. I think maybe the ETG putting a little pressure on the shares this morning. It sounds like, and I know you referenced Q1 2024, the mix issue is completely temporary. It was a pretty significant sequential drop, but, you know, any more color on that, your backlog, I guess, and mix? Doesn't sound like you have any, you know, trepidation, and we could bounce right back to, you know, that low to mid-20s range for the year. Is that fair to say?

Speaker #4: It sounds like the and I know you referenced Q1 24. It sounds like the mix issue is completely temporary. It was a pretty significant sequential drop but any more color on that your backlog I guess and mix doesn't sound like you have any trepidation and we could bounce right back to that low to mid-20s range for the year is that fair to say?

Speaker #5: Yeah I think that's absolutely right. That's our expectation and based on the shipment schedules and what we have that's what we're expecting. And it is an unusual for us to move around.

Victor Mendelson: Yeah, I think that's absolutely right. That's our expectation, and based on the shipment schedules and what we have, that's what we're expecting. It isn't unusual for us to move around. It may be lower than the average, you know, we.

Speaker #5: It may be lower than the average but we get. Sometimes we get the perfect storm of good shipment schedules and sometimes we got the perfect storm of unfortunate shipment schedules.

Larry Solow: Sure.

Victor Mendelson: Sometimes we get the perfect storm of good-

Victor Mendelson: Sometimes we get the perfect storm of good.

Larry Solow: Mm-hmm

Larry Solow: Mm-hmm.

Victor Mendelson: shipment schedules, and sometimes we got the perfect storm of unfortunate shipment schedules. That's why, you know, we really guide people to look at the, at the full year on the ETG, particularly as it, you know, as it moves on throughout the quarters. The, you know, the experience we had on this, was in, you know, multiple different products and subsidiaries, as I said, sort of the perfect storm, on the downside, if you will, on margins. You know, very heavily mix related, extremely heavily mix related. Right now, what we have scheduled for shipments and what our subsidiaries are showing on the, as the year wears on, is pretty exciting. Of course, we'll have to see. There are no guarantees, I always say, in life, but.

Victor Mendelson: Shipment schedules, and sometimes we got the perfect storm of unfortunate shipment schedules. That's why, you know, we really guide people to look at the, at the full year on the ETG, particularly as it, you know, as it moves on throughout the quarters. The, you know, the experience we had on this, was in, you know, multiple different products and subsidiaries, as I said, sort of the perfect storm, on the downside, if you will, on margins. You know, very heavily mix related, extremely heavily mix related. Right now, what we have scheduled for shipments and what our subsidiaries are showing on the, as the year wears on, is pretty exciting. Of course, we'll have to see. There are no guarantees, I always say, in life, but.

Speaker #5: But and that's why we really guide people to look at the full year on the ETG particularly as it moves on throughout the quarters.

Speaker #5: And the experience we had on this was in multiple different products and subsidiaries as I said sort of the perfect storm on the downside if you will on margins very heavily mix-related extremely heavily mix-related.

Speaker #5: And right now what we have scheduled for shipments and what our subsidiaries are showing on the as the year wears on is pretty exciting.

Speaker #5: Of course we'll have to see there are no guarantees I always say in life but right now I'm feeling good about what our companies are telling us feeling very good about what our companies are telling us.

Larry Solow: Absolutely.

Victor Mendelson: Right now I'm feeling good about what our companies are telling us. Feeling very good about what our companies are telling us.

Speaker #4: Right. And it feels like a great environment for a lot of your companies, right in the defensive sides for sure. So, yeah.

Larry Solow: Right. It feels like a great environment for a lot of your companies, right, on the defense side, for sure.

Victor Mendelson: Yeah.

Victor Mendelson: Yeah. I mean, if you look at our orders, and you look at our backlog in the group, and how it's been growing. It's very exciting. You know, the mix of what's been growing is a nice mix overall.

Speaker #5: Yeah. I mean if you look at our orders and you look at our backlog in the group and how it's been growing it's very exciting and the mix of what's been growing is a nice mix overall.

Larry Solow: Um-

Victor Mendelson: I mean, if you look at our orders, and you look at our backlog in the group, and how it's been growing...

Larry Solow: Mm-hmm

Victor Mendelson: it's very exciting. You know, the mix of what's been growing is a nice mix overall.

Larry Solow: Right.

Victor Mendelson: You know, feeling good about it. Nothing's ever easy, but feeling good about it.

Speaker #5: So feeling good about it and nothing's ever easy but feeling good about it.

Victor Mendelson: You know, feeling good about it. Nothing's ever easy, but feeling good about it.

Speaker #4: Yeah sure. And while I got you Victor a pretty nice size acquisition the Axelion or I guess you renamed RockMart Fuel I think it's your third largest ever in a HEICO history so.

Larry Solow: Yeah, sure. While I got you, Victor, a pretty nice size acquisition, the Axillon, or I guess, renamed Rockmart Fuel. I think it's your third largest ever, you know, you know, in HEICO history. Any more color on this? Is this your usual sort of type multiple and accretion we should expect over time?

Speaker #4: Any more color on this is this your usual sort of type multiple and accretion we should expect over time?

Victor Mendelson: It's a very nice business. It is a, it's a supplier. It's done a lot of business with one of our other subsidiaries, Robertson Fuel Systems. They will be operating separately. There's a lot that they can do for each other in terms of production, smoothing out production, as well as new designs and being pretty innovative for our customers. That will actually, you know, that is reporting to the Robertson business to keep things very.

Speaker #5: It's a very nice business. It is a it's a supplier and has done a lot of business with one of our other subsidiaries Robertson Fuel Systems.

Speaker #5: They will be operating separately but there's a lot that they can do to do for each other in terms of production smoothing out production as well as new designs and being pretty innovative for our customers.

Speaker #5: And so that will actually—that is reporting to the Robertson business to keep things very streamlined and easy. I think we expect that to be—it has been growing.

Larry Solow: Mm-hmm

Victor Mendelson: streamlined and easy. I think it's, you know, it has been growing. We expect it to continue to grow. There's a big aftermarket, if you will, cycle to it, replacement cycle, that appears to be growing. We appear to be in the early innings of that. You know, we're pretty happy with it. You know, as we said, we expect it to be accretive to earnings in the first year of ownership. You know, we've only owned it for about a month. So far, so good.

Speaker #5: We expect it to continue to grow there's a big aftermarket if you will cycle to it replacement cycle that appears to be growing. We appear to be in the early innings of that.

Speaker #5: So we're pretty happy with it. As we said, we expect it to be accretive to earnings in the first year of ownership. We've only owned it for about a month, so, so far so good, but I won't declare victory or anything else based on one month, but right now feeling pretty good about it.

Larry Solow: Right.

Victor Mendelson: I won't declare...

Victor Mendelson: I won't declar the victory or anything else, based on one month.

Larry Solow: Mm-hmm

Victor Mendelson: ... the victory or anything else, based on one month.

Larry Solow: Absolutely.

Victor Mendelson: Right now, feeling pretty good about it.

Speaker #4: Great. If I could just one quick if Eric just the organic growth still very strong 12% on a difficult comp. I'm just curious historically Q1 you usually have seen some seasonal slowdown.

Larry Solow: Great. If I could just put one quickly for Eric, just the organic growth, still very strong, 12% and on a difficult comp. I'm just curious, you know, historically, Q1, you usually have seen some seasonal slowdown. We haven't in the last couple of years in terms of recovery and growth on the aerospace side. Just curious, you know, any thoughts on are we maybe just getting into a little more normal seasonality, where Q1 actually drops a little bit from Q4, which we hadn't seen in a couple of years, but we used to see if we go back? Thanks.

Speaker #4: We have seen it in the last couple of years and with the recovery and growth on the aerospace side. But just curious, any thoughts on are we maybe just getting into a little more normal seasonality where your Q1 actually drops a little bit from Q4, which we hadn't seen in a couple of years but we used to see if we go back.

Speaker #4: Thanks.

Speaker #5: Hi you look very thank you very much for your question. I mean you're absolutely correct. I mean in general if you look last year Q1 was the lightest organic growth likewise in 2024 as well.

Eric Mendelson: Hi, look, Larry, thank you very much for your question. I mean, you're absolutely correct. I mean, in general, if you look last year, Q1 was the lightest organic growth, likewise in 2024 as well. You know, I'm particularly proud of these results, given the high comps that we had in the prior years. You know, we had very high.

Speaker #5: I'm particularly proud of these results given the high comps that we had in the prior years. We had very high comps basically for the last four years and to post 12% organic growth on top of them I think is really outstanding.

Larry Solow: Right

Eric Mendelson: ... comps basically for the last four years, and to post 12% organic growth on top of them, I think is really outstanding. if you will, we didn't stuff the channel. There's a whole bunch of inventory that could have gone out, which didn't go out for various reasons, but we're very careful to make sure that we, you know, we do what the customers want. I'm very happy with these numbers. I think they reflect very well on the group.

Larry Solow: Right.

Eric Mendelson: Comps basically for the last four years, and to post 12% organic growth on top of them, I think is really outstanding. if you will, we didn't stuff the channel. There's a whole bunch of inventory that could have gone out, which didn't go out for various reasons, but we're very careful to make sure that we, you know, we do what the customers want. I'm very happy with these numbers. I think they reflect very well on the group.

Speaker #5: And if you will, we didn't stuff the channel. There's a whole bunch of inventory that could have gone out, which didn't go out for various reasons.

Speaker #5: But we're very careful to make sure that we do what the customers want. I'm very happy with these numbers. I think they reflect very well on the group.

Speaker #4: Great. Congrats. I appreciate that. Thank you.

Larry Solow: Great. Congrats. I appreciate that. Thank you.

Speaker #5: Thanks.

Eric Mendelson: Thanks.

Speaker #6: And we'll take our next question from Peter Armand with Baird.

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

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

Speaker #7: Hey good morning Eric Victor Carlos. Nice results as usual.

Peter Arment: Hey, good morning, Eric, Victor, and Carlos. Nice results as usual.

Speaker #5: Thank ank you.

Victor Mendelson: Thank you.

Peter Arment: Victor, maybe we could just drill in a little bit to try to understand the space kind of mix. I know in the past, it's been a nice margin contributor for ETG. Could you describe a little bit? I think you were a little more GEO-oriented versus like the LEO market. Is that still true, just given the overall mix and just how you see the overall kind of set up for HEICO, given all the demand for LEO market?

Speaker #7: Victor maybe we could just drill in a little bit to try to understand the space kind of mix I know in the past it's been a nice margin contributor for ETG but could you describe a little bit I think you were a little more geo-oriented versus like the Leo market.

Speaker #7: Is that still true just given the overall mix and just how you see the overall kind of setup for HEICO, given all the demand for the LEO market?

Speaker #5: Yeah. It's a very good question. Originally the business was more heavily geo and over time I would say now we're more heavily Leo. And that in the businesses that were geo originally shifting to Leo isn't cheap right.

Victor Mendelson: Yeah, it's a very good question. Originally, the business was more heavily GEO, and over time, I would say now we're more heavily LEO. That, you know, and the businesses that were GEO, originally, you know, shifting to LEO, isn't cheap, right? The margins are less. There's a lot of different, you know, product design and R&D that goes into that. That I think we're getting through, if you will, sort of the other side of that over the course of this year. You know, we still have a pretty good offering for GEO, but we go where the customers are, and that's really the LEO market.

Speaker #5: Margins are less. There's a lot of different product design and R&D that goes into that. And but that I think we're getting through if you will sort of the other side of that over the course of this year.

Speaker #5: And we still have a pretty good offering for geo but we go where the customers are and that's really the Leo market. And we have some great businesses with very strong margins in Leo too.

Victor Mendelson: We have some great businesses with very strong margins in LEO, too, by the way. Actually, I think now, some really strong margins there. That, as you may recall, too, has been a very uneven business, I mean, from quarter to quarter. We like space, but we're not gonna be too much of a space company for that reason. You've probably noticed that. We've limited, we've been careful how we've grown in space for that reason.

Victor Mendelson: We have some great businesses with very strong margins in LEO, too, by the way. Actually, I think now, some really strong margins there. That, as you may recall, too, has been a very uneven business, I mean, from quarter to quarter. We like space, but we're not going to be too much of a space company for that reason. You've probably noticed that. We've limited, we've been careful how we've grown in space for that reason.

Speaker #5: By the way actually I think now some really strong margins there. So but that as you may recall too has been a very uneven very very uneven business.

Speaker #5: I mean, from quarter to quarter, and we like space, but we're not going to be too much of a space company for that reason.

Speaker #5: And you've probably noticed that we've limited we've been careful how we've grown in space for that reason.

Speaker #7: Got it. That's appreciate the color there. And then Eric just briefly can you give me a little commentary there a competitor bought a PMA business and obviously you guys still I think are kind of the leader in PMAs is this a deal that had overlap with you or how should we view that?

Peter Arment: Got it. I appreciate the color there. Then, Eric, just briefly, can you give me a little commentary there? A competitor bought a PMA business, and obviously, you guys still, I think, are, you know, kind of the leader in PMAs. Is this a deal that had overlap with you, or how should we view that? Thanks.

Speaker #7: Thanks.

Eric Mendelson: Thanks, Peter, for your question. Well, you know how the old saying goes, Imitation is the highest form of flattery. For years, you know, when we started doing this, people thought we were crazy to be in the PMA business, then they thought we were crazy to be in the repair business, in distribution, and all the things we did. Those people who were smart enough to invest in HEICO did extremely well. We think this is a sign that the PMA market is incredibly strong, there are a tremendous number of PMA candidates out there. People have asked me, what does this mean for HEICO's competitive positioning? We feel very strongly about HEICO's competitive positioning.

Speaker #4: Thanks Peter for your question. Well you know how the old saying goes imitation is the highest form of flattery. And for years when we started doing this people thought we were crazy to be in the PMA business.

Speaker #4: And then they thought we were crazy to be in the repair business in distribution and all the things we did. And those people who were smart enough to invest in HEICO did extremely well.

Speaker #4: So we think this is a sign that the PMA market is incredibly strong and there are a tremendous number of PMA candidates out there.

Speaker #4: People have asked me what does this mean for HEICO's competitive positioning. And we feel very strongly about HEICO's competitive positioning. We have a we've been running this company for 36 years and we've always focused on the customer and always focused on generating value for the customer.

Eric Mendelson: You know, we've been running this company for 36 years, and we've always focused on the customer and always focused on generating value for the customer. I would venture to guess we probably have the best customer relationships in the entire industry, and I don't anticipate that to change. that's because we add value, we do what we say we're going to do, and people know when they work with HEICO, they're getting a top quality product. we still have a, you know, tremendous presence in that market. We are totally committed to it, and I think it shows that others are recognizing the value of the PMA business.

Speaker #4: And I would venture to guess we probably have the best customer relationships in the entire industry. And I don't anticipate that to change. And that's because we add value we do what we say we're going to do and people know when they work with HEICO they're getting a top quality product.

Speaker #4: So, we still have a tremendous presence in that market. We are totally committed to it, and I think it shows that others are recognizing the value of the PMA business.

Speaker #7: Appreciate all the details. Thanks guys.

[Analyst] (Aiera): Appreciate all the details. Thanks, guys.

Peter Arment: Appreciate all the details. Thanks, guys.

Speaker #4: Thanks.

Eric Mendelson: Thanks.

Speaker #6: And we'll take our next question from Ken Herbert with RBC Capital Markets.

Samara: We'll take our next question from Ken Herbert with RBC Capital Markets.

Operator: We'll take our next question from Ken Herbert with RBC Capital Markets.

Speaker #8: Yeah. Hi good morning. Thank you. Hey Eric.

Ken Herbert: Yeah. Hi, good morning. Thank you. Hey, Eric-

Ken Herbert: Yeah. Hi, good morning. Thank you. Hey, Eric.

Eric Mendelson: Thanks, Ken.

Speaker #4: Thanks Ken.

Speaker #8: Yeah. Eric maybe just wanted to follow up on your just comments there. I think there's a belief that PMA represents one of the real secular growing markets coming out of the pandemic as the industry continues to face a lot of service challenges.

Ken Herbert: Yeah. Eric, maybe just wanted to follow up on your just comments there. I think there's a belief that PMA represents one of the real secular growing markets, coming out of the pandemic, as the industry continues to face a lot of service challenges. Can you just maybe comment from an industry perspective, what kind of growth you're seeing in PMA and where maybe you see specific opportunities for HEICO, either in markets you typically haven't been in, or maybe with customer sets, or any other ways you look at the market, that help us better frame how PMA is actually really doing broadly, and for you obviously, you know, here, as we continue to see the recovery?

Speaker #8: Can you just maybe comment from an industry perspective what kind of growth you're seeing in PMA, and where maybe you see specific opportunities for HEICO—either in markets you typically haven't been in, or maybe with customer sets, or any other ways you look at the market that help us better frame how PMA is actually really doing, broadly and for you, obviously, here as we continue to see the recovery.

Speaker #4: Yeah. Ken I would be happy to answer that. And first of all I really recognize you as you were one of the early one of the analysts who very early on figured out that what HEICO was doing in the PMA space was going to be very successful both to the airlines as well as for our shareholders and team members.

Eric Mendelson: Yeah, Ken, I would be happy to answer that. First of all, I really recognize you, as you were one of the analysts who very early on figured out that what HEICO was doing in the PMA space was going to be very successful, both to the airlines as well as for our shareholders, and team members, and those who followed your advice have profited handsomely. We are very committed and have never been more excited about the PMA business than we are today. You know, we've got roughly 20,000 different parts. It is a huge catalog and a huge competitive advantage because when we want to develop a new part, I mean, there's very little stuff in this world which is truly new to us. We've got this catalog.

Speaker #4: And those who followed your advice have profited handsomely. We are very committed and have never been more excited about the PMA business than we are today.

Speaker #4: We are we've got roughly 20,000 different parts. It is a huge catalog and a huge competitive advantage. Because when we want to develop a new part I mean there's very little stuff in this world which is truly truly new to us.

Speaker #4: We've got this catalog. We're able to go back and reference the drawings the specifications the vendors the manufacturing processes and the barrier to entry is tremendous in doing that.

Eric Mendelson: We're able to go back and reference the drawings, the specifications, the vendors, the manufacturing processes, and the barrier to entry is tremendous in doing that. What we really need is greater acceptance at the airlines. You know, we've spoken about this for many years, why don't the airlines buy even more? Why don't they push us to buy even more? We're very happy with what we've done, but why isn't it even more? I do think to your point, that coming out of COVID, they recognize what we've said all along, that PMA isn't only about price, it's about turn time and making sure that you've got an alternate vendor, and you have the part on the shelf. I have got tremendous respect for all of our competitors who supply parts to the industry.

Speaker #4: So what we really need is greater acceptance at the airlines. And we've spoken about this for many years. Why don't the airlines buy even more?

Speaker #4: And why don't they push us to buy even more? We're very happy with what we've done. But why isn't it even more? And I do think to your point that coming out of COVID they recognize what we've said all along that PMA isn't only about price.

Speaker #4: It's about turn time. And making sure that you've got an alternate vendor and you have the part on the shelf. I have got tremendous respect for all of our competitors who supply parts to the industry.

Speaker #4: It's a very hard thing to forecast the demand for a particular part. You never know what it's going to be. And it depends on so many things including the type of build that was done by either the airline or the repair station at the prior shop visit for the engine or the component.

Eric Mendelson: It's a very hard thing to forecast the demand for a particular part. You never know what it's going to be. It depends on so many things, including the type of build that was done by either the airline or the repair station at the prior shop visit for the engine or the component. You know, if times were good and they had plenty of money, and then they put a lot of new parts in, then when the component comes back, you're not going to need a lot of parts. If times weren't good and they did the minimum, then you're going to need a lot of parts. The problem is, for all of the vendors, it becomes extremely difficult to forecast in that situation.

Speaker #4: If times were good and they had plenty of money and then they put a lot of new parts in then when the component comes back you're not going to need a lot of parts.

Speaker #4: But if times weren't good and they did the minimum then you're going to need a lot of parts. And the problem is for all of the vendors it becomes extremely difficult to forecast in that situation.

Speaker #4: So what we've always said is that HEICO provides not only top quality and outstanding value and cost savings but we also provide availability. And this is something that has become front and center since COVID.

Eric Mendelson: What we've always said is that HEICO provides not only top quality and outstanding value and cost savings, but we also provide availability. This is something that has become, you know, front and center since COVID. We're happy about that. You look at, you ask specifically the products that we're doing, our sales in the PMA business are roughly three-quarters non-engine, which would be components, airframe, interior, and about 25% engine. Our engine business is at a record level. We are doing extremely well. We are developing more engine parts. The airlines want us to develop more engine parts. I think you've written about the cost of engine overhaul. The cost to overhaul some of these new engines is significantly higher than the cost to overhaul some of the existing engines.

Speaker #4: So we're happy about that. When you look at the US specifically the products that we're doing our sales in the PMA business are roughly three quarters non-engine which would be components airframe interior and about 25% engine.

Speaker #4: Our engine business is at a record level. We are doing extremely well. We are developing more engine parts. The airlines want us to develop more engine parts.

Speaker #4: I think you've written about the cost of engine overhaul. And the cost to overhaul some of these new engines is significantly higher than the cost to overhaul some of the existing engines.

Speaker #4: So we think that there's going to be tremendous opportunity for us through out the entire value chain. And I don't want to pick on just engines.

Eric Mendelson: We think that there's going to be tremendous opportunity for us throughout the entire value chain. You know, I don't want to pick on just engines, but on components as well. The newer components are extraordinarily expensive. I mean, they are off the charts nuts on the prices that they are charging. I think that HEICO is going to do extraordinarily well in our PMA and repair businesses as we help airlines, you know, reduce their costs and keep them somewhat manageable and provide an alternate source of supply. I can't get into obvious, you know, specific product types or manufacturer types for competitive reasons. We'd rather just go do our thing and satisfy the airlines.

Speaker #4: But on components as well. The newer components are extraordinarily expensive. I mean they are off the charts nuts on the prices that they are charging.

Speaker #4: So I think that HEICO is going to do extraordinarily well in our PMA and repair businesses as we help airlines reduce their costs and keep them somewhat manageable and provide an alternate source of supply.

Speaker #4: I can't get into obvious specific product types or manufacturer types for competitive reasons. We'd rather just go do our thing and satisfy the airlines.

Speaker #8: Yeah. I appreciate all the color Eric. Just to put a final point on that. Yes.

Ken Herbert: Yeah, appreciate all the color, Eric. Just to put a final point on that...

Ken Herbert: Yeah, appreciate all the color, Eric. Just to put a final point on that.

Eric Mendelson: Yes.

Ken Herbert: Yes.

Carlos Macau: You know, I might just add to what Eric just said, just to maybe put a few leaves on the tree, if you would. You know, our organic growth in our aftermarket business, which is our, you know, our parts and repair business, was up organically in the teens, and specialty products was in the high single digits. To echo what Eric said, I mean, our end markets in aerospace are very robust, and our guys are executing. I just thought you might find that nugget helpful.

Speaker #4: I might just add to what Eric just said just to maybe put a few leaves on the tree if you would. Our organic growth in our aftermarket business which is our parts and repair business was up organically in the teens and specialty products was in the high single digits.

Speaker #4: So to echo what Eric said I mean our end markets and aerospace are very robust and our guys are executing. I just thought you might find that nugget helpful.

Speaker #8: No, I appreciate that, Carlos. And maybe just to put a finer point on it—historically, the argument was the lessors, and maybe some of the emerging market airlines, didn't use PMA much.

Ken Herbert: No, I appreciate that, Carlos. Maybe just to put a finer point on it. Historically, the argument was the lessors and maybe some of the emerging market airlines didn't use PMA much. Are you seeing any shift in customer types and adoptions? Thank you.

Speaker #8: Are you seeing any shift in customer types and adoptions? Thank you.

Speaker #4: Yes. We are seeing shifts in customer types and adoptions. The airlines recognize they need this. I'm aware of all sorts of activity and initiatives which I'd rather not call out on this call for competitive reasons.

Eric Mendelson: Yes, we are seeing shifts in customer types and adoptions. The airlines recognize they need this. You know, I'm aware of all sorts of activity and initiatives, which I'd rather not call out on this call for competitive reasons, we think that they are going to benefit HEICO tremendously.

Speaker #4: But we think that they are going to benefit HEICO tremendously.

Speaker #8: Great. Thank you very much.

Ken Herbert: Great. Thank you very much.

Speaker #4: Thank you.

Eric Mendelson: Thank you.

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

Samara: We'll take our next question from Sheila Kahyaoglu with Jefferies.

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

Speaker #9: Good morning guys and thank you so much. Maybe my first question I just wanted to clarify something. I joined later on the call. With Ethos was it paid through a class shares and Eric how do we think about those distributions happening?

Sheila Kahyaoglu: Good morning, guys, thank you so much. Maybe my first question, I just wanted to clarify something. I joined later on the call. With Ethos, was it paid through A-class shares? You know, Eric, how do we think about those distributions happening? Because I think you were mentioning it. Why was it A class versus the common stock?

Speaker #9: Because I think you were mentioning it. And why was it a class versus the common stock?

Speaker #8: Yeah. I'd be happy to answer. So most of the consideration was cash. So I think it was roughly Carlos knows the exact percentage but I think it was over 80% in cash if I'm not mistaken.

Eric Mendelson: Yeah, I'd be happy to answer. Most of the consideration was cash. I think it was roughly. Carlos knows the exact percentage, but I think it was over 80% in cash, if I'm not mistaken. Carlos, is that correct?

Speaker #8: Carlos is that correct?

Speaker #2: That's correct. It was a small quantity of A shares and they wanted to feel like owners. It was their request.

Carlos Macau: That's correct. It was a small quantity of A shares, and, you know, they wanted to feel like owners. It was their request.

Eric Mendelson: Yeah. They, look, sometimes we do this because, you know, people are very happy to own the HEICO stock. The request was for A shares, so that is why we granted the A shares, and that's the that was the concept there. We're very excited about that acquisition.

Speaker #8: Yeah. Yeah. And look sometimes we do this because people are very happy to own the HEICO stock. The request was for A shares. So that is why we granted the A shares.

Speaker #8: Yes. And that was the concept there. But we're very excited about that acquisition.

Speaker #9: Okay. Got it. No. It certainly seems like the right end market to be in. And then maybe Victor one for you. As we think about ETG profitability going forward I know it ebbs and flows.

Sheila Kahyaoglu: Okay, got it. It certainly seems like the right end market to be in. Maybe, Victor, one for you. As we think about ETG profitability going forward, I know it ebbs and flows, is there any way you could bridge us on the margins in the quarter and, like, how to look forward?

Speaker #9: Is there any way you could bridge us on the margins in the quarter and how to look forward?

Carlos Macau: You know, Look, we continue to expect 22% to 24% GAAP margins in the business, which, you know, is 26% to 28% over the course of the year. You're gonna have quarters that are above and below that amount, which is, again, historically the case. I mean, there's nothing new to this. You know, I try to remind people this as often as possible, there will be variability in the margins and the growth rate of the ETG. There's nothing that's changed. There's nothing that's fundamentally changed in the business.

Carlos Macau: You know, Look, we continue to expect 22% to 24% GAAP margins in the business, which, you know, is 26% to 28% over the course of the year. You're going to have quarters that are above and below that amount, which is, again, historically the case. I mean, there's nothing new to this. You know, I try to remind people this as often as possible, there will be variability in the margins and the growth rate of the ETG. There's nothing that's changed. There's nothing that's fundamentally changed in the business.

Speaker #8: Look we continue to expect '22 to '24 percent gap margins in the business which is 26 to 28 percent over the course of the year.

Speaker #8: So you're going to have quarters that are above and below that amount. Which is again historically the case. I mean there's nothing new to this.

Speaker #8: I try to remind people this as often as possible that it will be variability in the margins and the growth rate of the ETG.

Speaker #8: There's nothing that's changed. There's nothing that's fundamentally changed in the business.

Speaker #9: Got it. Thank you.

Sheila Kahyaoglu: Got it. Thank you.

Speaker #8: Thank you Sheila.

Carlos Macau: Thank you, Sheila.

Speaker #4: And by the way Sheila just to expand on what I said about Ethos. The sellers recognized that this market was really a tremendously growing market.

Eric Mendelson: By the way, Sheila, just to expand on what I said about Ethos. You know, the sellers recognized that this market was really a tremendously growing market, and for them to part with one of the foremost repair and overhaul shops focusing on industrial gas turbines and aeroderivative gas turbines, they really wanted to be compensated. They, you know, the request for HEICO Air A shares was in order to help reward them. We're very excited. Everybody's very knowledgeable about what's going on in the power generation space. Ethos has incredible capabilities in developing and executing on parts repairs, component repairs, and the access to that market. They've got three different facilities in Connecticut, South Carolina, and Aberdeen, Scotland.

Speaker #4: And for them to part with one of the foremost repair and overhaul shops focusing on industrial gas turbines and aeroderivative gas turbines they really wanted to be compensated.

Speaker #4: And the request for HEICO A shares was in order to help reward them. We're very excited. Everybody's very knowledgeable about what's going on in the power generation space.

Speaker #4: And Ethos has incredible capabilities in developing and executing on parts repairs, component repairs, and the access to that market. They've got three different facilities in Connecticut, South Carolina, and Aberdeen, Scotland.

Speaker #4: So they've got great access to the market. Great people. Great technology. And by putting it with HEICO I think that it's going to provide HEICO with the ability to access what is as you know a tremendously growing market.

Eric Mendelson: They've got great access to the market, great people, great technology, and by putting it with HEICO, I think that it's going to provide HEICO with the ability to access what is, you know, as you know, a tremendously growing market. The A shares were just a component, if you will, a sweetener, because if they're gonna part with what we think is an incredible asset, they wanted, you know, something additional, and we were able. You know, the other thing, which is important, it's very easy to buy companies, but to buy companies at prices where it's accretive is, using cash, is extremely difficult. We were able to get this deal done at a reasonable price, and the A shares were part of that enticement.

Eric Mendelson: They've got great access to the market, great people, great technology, and by putting it with HEICO, I think that it's going to provide HEICO with the ability to access what is, you know, as you know, a tremendously growing market. The A shares were just a component, if you will, a sweetener, because if they're going to part with what we think is an incredible asset, they wanted, you know, something additional, and we were able. You know, the other thing, which is important, it's very easy to buy companies, but to buy companies at prices where it's accretive is, using cash, is extremely difficult. We were able to get this deal done at a reasonable price, and the A shares were part of that enticement.

Speaker #4: So the A shares were just a component if you will a sweetener. Because if they're going to part with what we think is an incredible asset they wanted something additional.

Speaker #4: And we were able the other thing which is important it's very easy to buy companies. But to buy companies at prices where it's accretive is using cash is extremely difficult.

Speaker #4: And we were able to get this deal done at a reasonable price and the A shares were part of that enticement.

Speaker #9: Understood. Thank you so much.

Ron Epstein: Understood. Thank you so much.

Sheila Kahyaoglu: Understood. Thank you so much.

Speaker #4: Thank you.

Eric Mendelson: Thank you.

Speaker #1: And we'll take our next question from Scott Duchal with Deutsche Bank.

Samara: We'll take our next question from Scott Deuschle with Deutsche Bank.

Operator: We'll take our next question from Scott Deuschle with Deutsche Bank.

Speaker #10: Hey. Good morning. Victor there's some elevated inflation right now in certain parts of the microelectronics supply chain particularly for memory. So I was wondering if you could speak to what ETG is seeing there?

Scott Deuschle: Hey, good morning. Victor, there's some elevated inflation right now in certain parts of the microelectronic supply chain, particularly for memory. I was wondering if you could speak to what ETG is seeing there?

Eric Mendelson: Yeah.

Speaker #10: And if you expect to see any margin pressure there either now or in the future?

Scott Deuschle: If you expect to see any margin pressure there, either now or in the future.

Speaker #2: Thank you Scott. It's a good question. We're definitely experiencing that elevated inflation rate in some of the components. We typically are able to pass those on to our customers.

Victor Mendelson: Thank you, Scott. It's a good question. We're definitely experiencing that elevated inflation rate in some of the components. We typically are able to pass those on to our customers. I think they accept that, they understand that. But there is a lag effect, and that does take some time. You got to work off the POs and, you know, items that are in the backlog. It is what I would consider a headwind, but more in the noise level and not not particularly notable. By the way, varies business by business, but overall, on a consolidated basis, more in the noise level.

Speaker #2: I think they accept that. They understand that. But there is a lag effect, and that does take some time. You've got to work off the POs and items that are in the backlog.

Speaker #2: It is what I would consider a headwind, but more in the noise level and not particularly notable. And, by the way, it varies business by business.

Speaker #2: But overall on a consolidated basis more in the noise level.

Speaker #10: Okay. Are you generally able to get all the product that you need? Is the supply chain itself a limiter or is it just a cost issue?

Scott Deuschle: Okay. Are you generally able to get all the product that you need? Like, is supply chain itself a limiter, or is it just a cost issue?

Speaker #2: I would say it's essentially normal what it's been outside of that supply chain crunch. Which is to say there's always something there's always a hot list item that's late and kind of holding things up.

Victor Mendelson: I would say it's essentially normal, you know, what it's been, outside of that supply chain crunch, which is to say that there's always something. There's always a hot list item that's late, and kind of holding things up somewhere in the system. You know, but for the most part, everything's running normal. It's kind of like airline schedules on a typical day. There are a certain number of delays, and that's kind of how it's running now.

Speaker #2: Somewhere in the system. And but for the most part everything's running normal. So it's kind of like airline schedules on a typical day. There are a certain number of delays and that's kind of how it's running now.

Speaker #10: Okay. And then for Eric do you see any opportunity for AI to help accelerate any of the maybe reverse engineering analysis for PMA and the speed at which new products can be brought to market?

Scott Deuschle: Okay. For Eric, do you see any opportunity for AI to help accelerate any of the maybe reverse engineering analysis for PMA and the speed at which new products can be brought to market? Alternatively, do you think AI could help yourself or your airline customers better query parts catalogs and identify new, maybe previously unexplored PMA opportunities? Just trying to better understand how HEICO can use AI to sustain or even accelerate growth. Thank you.

Speaker #10: Or alternatively do you think AI could help yourself or your airline customers better query parts catalogs and identify new maybe previously unexplored PMA opportunities?

Speaker #10: Just trying to better understand how HEICO can use AI to sustain or even accelerate growth. Thank you.

Speaker #4: Yeah. That question has a lot of insight. And I think the answer is definitely with regard to both developing new parts, streamlining processes, I was just up at one of our subsidiaries last week and they showed me there was a certain process in our quality acceptance area where we had multiple documents and multiple forms had to be filled out and they were able through AI to come up with a revised process which is significantly more efficient than what we were doing before.

Eric Mendelson: Yeah, that question has a lot of insight, and I think the answer is definitely with regard to both developing new parts, streamlining processes. I was just up at one of our subsidiaries last week, and they showed me there was a certain process in our quality acceptance area, where we had multiple documents and multiple forms had to be filled out. And they were able, through AI, to come up with a revised process, which is significantly more efficient than what we were doing before. We're already using it in the operations at HEICO. As far as the engineering, I think there is a lot of opportunity there, and it is as well being used over in the engineering process.

Speaker #4: So we're already using it in the operations at HEICO. As far as the engineering I think there is. A lot of opportunity there and it is as well being used over in the engineering process.

Speaker #4: And I agree with you. For customers to be able to figure out what they need to buy and look at the HEICO performance rate or quality rate or quality rating, how happy everybody is with us, I think that it will be a continued tailwind for HEICO.

Eric Mendelson: I agree with you, for customers to be able to figure out what they need to buy and, you know, look at the HEICO performance rate or quality rate or quality rating, how happy everybody is with us, I think that it will be a continued tailwind for HEICO. I mean, there's no reason why customers aren't buying more of our product line, and I think AI will accelerate our growth.

Speaker #4: I mean, there's no reason why customers aren't buying more of our product line. And I think AI will accelerate our growth.

Speaker #10: Great. Thank you.

Scott Deuschle: Great. Thank you.

Speaker #4: Thank you.

Eric Mendelson: Thank you.

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

Samara: We'll take our next question from Ron Epstein with Bank of America.

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

Speaker #11: Hey. Good morning guys. Hope you're doing well.

Ron Epstein: Hey, good morning, guys. Hope you're doing well.

Speaker #12: Good morning.

Victor Mendelson: Good morning, Ron.

Ron Epstein: Hey, just as a follow-on here, if you look at some of the evolving contract structures that are going on with some of the big defense primes, in particular, these 7-year framework agreements, so far we've seen, you know, a handful with Lockheed, a bigger handful with RTX. What kind of impact do you expect that to have on you guys, if at all, where potentially you could get visibility on contracts out maybe 7 years? You know, how does that impact your business, and how are you thinking about it?

Speaker #11: Hey. Just as a follow on here. If you look at some of the evolving contract structures that are going on with some of the big defense primes, in particular these seven-year framework agreements, so far we've seen a handful of Lockheed, a bigger handful with RTX.

Speaker #11: What kind of impact do you expect that to have on you guys if at all? Where potentially you could get visibility on contracts out maybe seven years and how does that impact your business?

Speaker #11: And how are you thinking about it?

Speaker #4: Yeah, Ron, good question. We think it's a net positive. We have a number of companies that supply on a lot of those programs, so it's something that gives us nice visibility into the future.

Victor Mendelson: Yeah, Ron, good question. We think it's a net positive. We have a number of companies that supply on a lot of those programs. It's something that gives us nice visibility into the future, helps us plan better, and, you know, on capacity, we've got really good capacity availability. It's usually a question of hiring people, and bringing more people in and figuring a way to do that, and different shifts. Overall, I think that's a net positive for us.

Speaker #4: Helps us plan better. And on capacity, we've got really good capacity availability. It's usually a question of hiring people and bringing more people in and figuring a way to do that in different shifts.

Speaker #4: So overall I think that's a net positive for us.

Speaker #11: And also just to add to that in the flight support group specialty products division, we think that that's going to have a very good impact because we've got we produce a lot of these different components.

Eric Mendelson: also...

Ron Epstein: Got it.

Eric Mendelson: Also just to add to that, in the Flight Support Group specialty products division, we think that's gonna have a very good impact because we've got. You know, we produce a lot of these different components, and having the advanced visibility into what's coming down the road is going to be extremely helpful. That's been a good tailwind for that business as well, with record backlogs for missile defense products.

Eric Mendelson: Also just to add to that, in the Flight Support Group specialty products division, we think that's going to have a very good impact because we've got. You know, we produce a lot of these different components, and having the advanced visibility into what's coming down the road is going to be extremely helpful. That's been a good tailwind for that business as well, with record backlogs for missile defense products.

Speaker #11: And having the advanced visibility into what's coming down the road is going to be extremely helpful. And that's been a good tailwind for that business as well with record backlogs.

Speaker #11: For missile defense products.

Speaker #10: Got it. Got it. Got it. And then we've talked about some supply chain stuff. I mean have you had any impact from critical minerals or magnets or whatever else and how you've been managing that in places where you do?

Ron Epstein: Got it. Got it. You know, we've talked about some, you know, some supply chain stuff. I mean, have you had any impact from, you know, critical minerals or magnets or whatever else, and how you've been managing that in places where you do?

Speaker #2: Yeah. It's very very very minimal. It has not been a significant issue for us. And so far we do not expect that it will become one.

Victor Mendelson: Yeah, it's very, very minimal. It has not been a significant issue for us. So far, we do not expect that it will become one. You know, in fact, there could be opportunities for us as a result of that when some of the new supply comes online in the US vis-à-vis acquisitions and things of that nature, but that's further down the road.

Speaker #2: And in fact there could be opportunities for us as a result of that when some of the new supply comes online in the US vis-à-vis acquisitions and things of that nature.

Speaker #2: But that's further down the road.

Speaker #10: Got it. Got it. And then maybe one more if I can. To both of you guys. What do you see broadly in the acquisition market around valuation and so on and so forth?

Ron Epstein: Got it. Got it. Maybe one more, if I can, to both of you guys. What are you seeing broadly in the acquisition market around valuation and so on and so forth? I mean, as you both know, no doubt, you know, the sector's gotten pretty hot. You know, how's that impacting how you're looking at valuations and how you can do M&A going forward, where it is accretive in the framework of time that you guys like?

Speaker #10: I mean as you both know no doubt the sector's gotten pretty hot. And how's that impacting how you're looking at valuations and how you can do M&A going forward where it is a creative in the framework of time that you guys like?

Speaker #12: Yeah. So Ron it's definitely push multiples up. Although over a long period of time. It isn't anything new. Maybe a little bit more than historically.

Victor Mendelson: Yeah. Ron, it's definitely pushed multiples up over a long period of time. It isn't anything new, maybe a little bit more than historically. For us, certainly that's why we're working so hard, to make sure that we do as well as we've done in the past. One of the important factors with us, I think, is the seller, and is the seller someone who's gonna retain the legacy and the operations, in a similar capacity as operated in the past. That gives us a really big advantage we've discovered historically. It doesn't mean we're gonna buy everything we want, but it means there's a very nice pipeline.

Victor Mendelson: Yeah. Ron, it's definitely pushed multiples up over a long period of time. It isn't anything new, maybe a little bit more than historically. For us, certainly that's why we're working so hard, to make sure that we do as well as we've done in the past. One of the important factors with us, I think, is the seller, and is the seller someone who's going to retain the legacy and the operations, in a similar capacity as operated in the past. That gives us a really big advantage we've discovered historically. It doesn't mean we're going to buy everything we want, but it means there's a very nice pipeline.

Speaker #12: For us certainly that's why we're working so hard to make sure that we do as well as we've done in the past. And one of the important factors with us I think is the seller.

Speaker #12: And is the seller someone who's looking for something unique. Particularly a good home for the business. Someone who's going to retain the legacy and the operations in a similar capacity as operated in the past.

Speaker #12: And that gives us a really big advantage. We've discovered historically. It doesn't mean we're going to buy everything we want. But it means there's a very nice pipeline we have to count on a little more future growth I think and believe in the growth stories.

Victor Mendelson: We have to count on a little more future growth, I think, and believe in the growth stories a little more than we used to. We're spending more time doing that to ensure that we think we're gonna get the growth out of the businesses that's estimated.

Victor Mendelson: We have to count on a little more future growth, I think, and believe in the growth stories a little more than we used to. We're spending more time doing that to ensure that we think we're going to get the growth out of the businesses that's estimated.

Speaker #12: A little more than we used to. And so we're spending more time doing that to ensure that we think we're going to get the growth out of the businesses that's estimated.

Ron Epstein: Got you.

Speaker #11: And then also just to add to that for a moment. Ron. As we mentioned our acquisition teams are busier than ever. Their pipelines are full.

Eric Mendelson: Also, also, just to add to that for a moment, Ron. As we mentioned, our acquisition teams are busier than ever. Their pipelines are full. I would expect additional acquisition activity this year. I think our shareholders, my guess is they're going to be very happy about what we're doing. The other key thing is that, you know, as Victor said, by differentiating ourselves and providing the best home for the seller, that has tremendous value. You know, it's very easy to go out and pay high prices and win an acquisition. It's another thing to make it work financially. HEICO has very rigorous cash flow requirements, and we model each deal on its own, where it's got to support its own debt service, its own working capital needs, et cetera.

Eric Mendelson: Also, just to add to that for a moment, Ron. As we mentioned, our acquisition teams are busier than ever. Their pipelines are full. I would expect additional acquisition activity this year. I think our shareholders, my guess is they're going to be very happy about what we're doing. The other key thing is that, you know, as Victor said, by differentiating ourselves and providing the best home for the seller, that has tremendous value. You know, it's very easy to go out and pay high prices and win an acquisition. It's another thing to make it work financially. HEICO has very rigorous cash flow requirements, and we model each deal on its own, where it's got to support its own debt service, its own working capital needs, et cetera.

Speaker #11: I would expect additional acquisition activity this year. I think our shareholders my guess is they're going to be very happy about what we're doing.

Speaker #11: And the other key thing is that as Victor said. By differentiating ourselves and providing the best home for the seller. That has tremendous value.

Speaker #11: It's very easy to go out and pay high prices and win an acquisition. It's another thing to make it work financially. And HEICO is very rigorous cash flow requirements.

Speaker #11: And we model each deal on its own where it's got to support its own debt service, its own working capital needs, etc. And that's how we've been able to compound.

Eric Mendelson: That's how we've been able to compound. You don't compound by going out and paying crazy prices for something. You compound by buying something that can stand on its own and is very reasonable. When you look at the, some of the prices of, you know, switching topics for a moment, of some of what I believe are the defense tech businesses, I think they're extremely exaggerated. You know, we look for businesses that generate cash now and in the future, and paying extremely high multiples for something that really doesn't generate cash is just not what HEICO is about and not what we plan on doing.

Speaker #11: You don't compound by going out and paying crazy prices for something. You compound by buying something that can stand on its own and is very reasonable.

Speaker #11: And when you look at the some of the prices of switching topics for a moment of some of what I believe are the defense tech businesses.

Speaker #11: I think they're extremely exaggerated. And we look for businesses that generate cash now and in the future. And paying extremely high multiples for something that really doesn't generate cash is just not what HEICO is about and not what we plan on doing.

Speaker #10: Gotcha. Cool. Thank you.

Ron Epstein: Gotcha. Cool. Thank you.

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

Samara: 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 #13: Morning Eric and Victor.

Scott Mikus: Morning, Eric and Victor.

Speaker #12: Good morning.

Eric Mendelson: Good morning.

Victor Mendelson: Good morning.

Speaker #11: Good morning.

Speaker #13: I was curious. Do you have a sense of how inventory levels are at your airline customers? Because you mentioned that you didn't want to stuff inventory into the channel.

Scott Mikus: I was curious, do you have a sense of how inventory levels are at your airline customers? You mentioned that you didn't want to stuff inventory into the channel. I was also curious, within your distribution businesses, have there been any noticeable changes over the past several quarters in how fast they are moving inventory? Has the pace picked up as airlines prep for the summer travel season?

Speaker #13: And then I was also curious within your distribution businesses. Have there been any noticeable changes over the past several quarters in how fast they are moving inventory?

Speaker #13: Is the pace picked up? Is airlines prepped for the summer travel season?

Speaker #11: Yeah, I would say the inventory levels are very consistent with what we've seen in the past. There are certain parts which they can be overstocked on.

Eric Mendelson: Yeah, I would say the inventory levels are very consistent to what we've seen in the past. You know, there are certain parts which they can be overstocked on, other parts where they're understocked on, but in general, there hasn't been a big change. As far as our distribution businesses, we've done extremely well. They are extremely busy, you know, supporting the demands of the aftermarket, and I really sort of see it very much as business as usual. You know, not much of a change for HEICO there.

Speaker #11: Other parts where they're understocked on. But in general, there hasn't been a big change. As far as our distribution businesses, we've done extremely well.

Speaker #11: They are extremely busy. Supporting the demands of the aftermarket. And but I really sort of see it very much as business as usual. And not much of a not much of a change for HEICO there.

Speaker #13: Okay. And then thinking back a year ago. A lot of us were asking about DOGE and how that could benefit your business. We're now one year into the current administration.

Scott Mikus: Okay. Thinking back a year ago, a lot of us were asking about DOGE and how that could benefit your business. We're now one year into the current administration. Have you started to see the Pentagon get the ball rolling on acquiring more alternative parts to both reduce maintenance costs and improve readiness rates for military aircraft? Are they at least doing it on the derivatives like the P-8s and KC-46s?

Speaker #13: So, have you started to see the Pentagon get the ball rolling on acquiring more alternative parts, to both reduce maintenance costs and improve readiness rates for military aircraft?

Speaker #13: And are they at least doing it on the derivatives, like the P-8s and KC-46s?

Speaker #11: What we've seen some movement there yes. We always said that this would be a medium-term project. It's very hard to get things fully moving.

Eric Mendelson: We've seen some movement there, yes. We always said that this would be a medium-term project. It's very hard to get things fully moving at the speed that we would like, but we are seeing good progress there, and we do anticipate further progress to come. We feel very good. You know, you look at the president's defense budget, and something's got to be a bill payer for these, you know, tremendous increases. This is very logical, and I think what the Secretary of War is doing makes a lot of sense, and they just can't keep on paying these high prices. I'm still very optimistic in that regard.

Speaker #11: At the speed that we would like. But we are seeing good progress there. And we do anticipate further progress to come. So we feel very good.

Speaker #11: You look at the president's defense budget. And something's got to be a bill payer for these tremendous increases. And this is very logical. And I think what the Secretary of War is doing makes a lot of sense.

Speaker #11: And they just can't keep on paying these high prices. So I'm still very optimistic in that regard.

Speaker #13: Got it. Thank you.

[Analyst] (Aiera): Got it. Thank you.

Speaker #11: Thank you.

Eric Mendelson: Thank you.

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

Samara: We'll take our next question from John Godyn with Citi.

Operator: We'll take our next question from John Godyn with Citi.

Speaker #10: Hey. Thanks a lot for squeezing me in here. Eric, I wanted to follow up on the energy business and ethos and what you're doing there.

John Godyn: Hey, thanks a lot for squeezing me in here. Eric, I wanted to follow up on the energy business and Ethos and what you're doing there. You offered a number of data points and breadcrumbs. We see different companies across A&D attacking this in different ways. I just wanted to talk about a big picture, but the types of questions on my mind are: Did you kind of go down this path based on reverse inquiries from customers? What types of components do you expect to supply? Is it based on your existing SKUs, or do you think that you're going to develop new SKUs? There are so many questions here. I can't go through all of them, but I just wanted to give you a chance to kind of talk through this a bit more.

Joathan Godyn: Hey, thanks a lot for squeezing me in here. Eric, I wanted to follow up on the energy business and Ethos and what you're doing there. You offered a number of data points and breadcrumbs. We see different companies across A&D attacking this in different ways. I just wanted to talk about a big picture, but the types of questions on my mind are: Did you kind of go down this path based on reverse inquiries from customers? What types of components do you expect to supply? Is it based on your existing SKUs, or do you think that you're going to develop new SKUs? There are so many questions here. I can't go through all of them, but I just wanted to give you a chance to kind of talk through this a bit more.

Speaker #10: You offered a number of data points and breadcrumbs. We see different companies across A&D attacking this in different ways. I just wanted to talk about a big picture.

Speaker #10: But the types of questions on my mind are, did you kind of go down this path based on reverse inquiries from customers? What types of components do you expect to supply?

Speaker #10: Is it based on your existing SKUs? Or do you think that you're going to develop new SKUs? There are so many questions here. I can't go through all of them.

Speaker #10: But I just wanted to give you a chance to kind of talk through this a bit more.

Speaker #11: Sure. Thank you. And I think that a great area which frankly hasn't been focused on by a lot of people. We thought that this would be a great market.

Eric Mendelson: Sure. Thank you. And I think that's a great area which frankly, hasn't been focused on by a lot of people. We thought that this would be a great market. If you look, we've been working on Ethos now for approximately a year, so we started that project a year ago. We saw what was going on in the industrial gas turbine space, and to a lesser extent, the aeroderivative. We thought that this would be a very strong area. We went out very aggressively to work with the seller and come up with a deal that made sense. I think we also developed a very good relationship with the operating folks at the businesses, and we were definitely their preferred buyer.

Speaker #11: If you look we've been working on ethos now for approximately a year. So we started that project a year ago. And we saw what was going on in the industrial gas turbine space.

Speaker #11: And to a lesser extent the aeroderivative. And we thought that this would be a very strong area. So we went out very aggressively to work with the seller.

Speaker #11: And come up with a deal that made sense. I think we also developed a very good relationship with the operating folks. At the businesses.

Speaker #11: And we were definitely their preferred buyer. As far as the aeroderivative connection, I mean, that makes a lot of sense. Everybody's very familiar with what HEICO does.

Eric Mendelson: You know, as far as the aeroderivative connection, I mean, that makes a lot of sense. Everybody's very familiar with what HEICO does and really what we can bring to some of the aeroderivative parts, should customers want that, as well on the industrial gas turbine parts. Both on the IGT and the aeroderivative, Ethos has very strong OEM relationships, and they have they're approved by various OEMs to support those products, and they've been doing so for a very long time. We are going to continue to support those channels and not offer an alternative if there is an OEM relationship there. Where there aren't OEM relationships, we'll try to form them with different companies.

Speaker #11: And really what we can bring to some of the aeroderivative parts should customers want that. As well on the industrial gas turbine parts. Both on the IGT and the aeroderivative, ethos has very strong OEM relationships.

Speaker #11: And they have they're approved by various OEMs to support those products. And they've been doing so for a very long time. So we are going to continue to support those channels.

Speaker #11: And not offer an alternative. If there is an OEM relationship there. Where there aren't OEM relationships, we'll try to form them with different companies.

Eric Mendelson: If not, we think that there's very good opportunity to continue penetrating the markets there. There's just a huge demand. I mean, you see what's going on with all the power companies, and Ethos has an extremely wide array of products that it services. It does blades, vanes, all sorts of, you know, various static parts, rotating parts, components. We think that their technology lines up perfectly with ours, and we are super excited to have made this acquisition. We think that it's going to be extremely successful and a great entree for HEICO. If HEICO were to try to enter the IGT, the industrial gas turbine or the aeroderivative market on its own, it would be extremely difficult.

Speaker #11: And if not, we think that there's very good opportunity to continue penetrating the markets there. There's just a huge demand. I mean, you see what's going on with all the power companies.

Speaker #11: And ethos has an extremely wide array of products that it services. It does blades, vanes, all sorts of various static parts, rotating parts. Components.

Speaker #11: And we think that their technology lines up perfectly with ours, and we are super excited to have made this acquisition. We think that it's going to be extremely successful and a great entrée for HEICO.

Speaker #11: If HEICO were to try to enter the EG the industrial gas turbine or the aeroderivative market on its own, it would be extremely difficult.

Speaker #11: We didn't have much of a relationship with those customers. And here ethos has been an incredible supplier for decades. With these companies. Actually, ethos, the genesis of it, is it used to be the Wood Group Aero Accessories and Components Group.

Eric Mendelson: We didn't, you know, have much of a relationship with those customers. Here, Ethos has been an incredible supplier for decades with these companies. Actually, Ethos, the genesis of it, is it used to be the Wood Group Aero Accessories and Components group. They have, you know, decades of working with the energy companies and the turbine suppliers. We think we've got a great platform to leverage and move forward.

Speaker #11: So they have decades of working with the energy companies and the turbine suppliers, so we think we've got a great platform to leverage and move forward.

Speaker #10: Yeah. And this is such a big market. I'm just kind of this is a very big picture question. But do you see this as something that could become so large for HEICO over in the fullness of time that as symbolically we might even have an IGT segment, a third segment for the first time or something like that?

John Godyn: This is such a big market. I'm just kind of... This is a very big picture question, but do you see this as something that could become so large for HEICO over, you know, in the fullness of time, you know, that as symbolically, we might even have an IGT segment, a third segment for the first time or something like that? Could it be that big?

Joathan Godyn: This is such a big market. I'm just kind of. This is a very big picture question, but do you see this as something that could become so large for HEICO over, you know, in the fullness of time, you know, that as symbolically, we might even have an IGT segment, a third segment for the first time or something like that? Could it be that big?

Speaker #10: Could it be that big?

Speaker #11: Well, that would be very aspirational. So I don't want to get over my skis here and promise that. But we do have very high expectations for the business.

Eric Mendelson: Well, that would be very aspirational. I don't want to get over my skis here and promise that, but we do have very high expectations for the business. I would say it's in early innings right now. The company's got great capability, great people, three locations, and, you know, I hope what you're saying is correct, and I'm sure that our team members at Ethos and at Wencor are listening to this call, and, they are inspired by your question and outlook for it.

Speaker #11: It really I would say it's in early innings right now. The company's got great capability, great people, three locations. And I hope what you're saying is correct.

Speaker #11: And I'm sure that our team members at ethos and at Wencor are listening to this call. And they are inspired by your question and outlook for it.

Speaker #10: Appreciate it. Thanks, guys.

John Godyn: Appreciate it. Thanks, guys.

Joathan Godyn: Appreciate it. Thanks, guys.

Speaker #11: Thank you.

Eric Mendelson: Thank you.

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

Samara: We'll take our next question from Matthew Akers with BNP Paribas.

Operator: We'll take our next question from Matthew Akers with BNP Paribas.

Speaker #12: Yeah. Hey, good morning, guys. Thanks for fitting me in. Most of mine have been asked already. But I wanted to just touch on the balance sheet and just how you feel 1.8 times leverage.

Matthew Akers: Yeah. Hey, good morning, guys. Thanks for fitting me in. Most of mine have been asked already, but I wanted to just touch on the balance sheet and just how you feel, you know, 1.8x leverage obviously seemed to come down quite a bit since Wencor. I think historically, you've been a little bit lower. Just how you feel, you know, are you comfortable at this level? Would you prefer to be lower? It sounds like there's a lot of potential M&A deals in the pipeline. Just how kind of are you thinking about the balance sheet here?

Speaker #12: Obviously, you've come down quite a bit since Wencor. But I think historically you've been a little bit lower. So just how you feel are you comfortable at this level?

Speaker #12: Would you prefer to be lower? It sounds like there's a lot of potential M&A deals in the pipeline, so just kind of how you're thinking about the balance sheet here.

Speaker #13: I'm happy to take that question. Our leverage right now is under two times, so I'm very comfortable at this leverage point. And I expect that what we've done in the past will continue into the future.

Carlos Macau: ... I'm happy to take that question. You know, our leverage right now is under 2 times, so I'm very comfortable at this leverage point. You know, I expect that what we've done in the past will continue into the future. You know, we'll continue to use a line of credit as a primary vehicle for funding acquisitions, which affords us the opportunity to quickly pay that down and reload for the next deals. You know, we'll still use that type of a structure. Right now, our permanent debt or the bonds that we have, are running less than 1 turn of EBITDA. I think our capital structure is quite flexible, and we're not capital constrained. You know, from a balance sheet perspective, we could go higher on leverage.

Carlos Macau: I'm happy to take that question. You know, our leverage right now is under 2 times, so I'm very comfortable at this leverage point. You know, I expect that what we've done in the past will continue into the future. You know, we'll continue to use a line of credit as a primary vehicle for funding acquisitions, which affords us the opportunity to quickly pay that down and reload for the next deals. You know, we'll still use that type of a structure. Right now, our permanent debt or the bonds that we have, are running less than 1 turn of EBITDA. I think our capital structure is quite flexible, and we're not capital constrained. You know, from a balance sheet perspective, we could go higher on leverage.

Speaker #13: We'll continue to use a line of credit as a primary vehicle for funding acquisitions. Which then affords us the opportunity to quickly pay that down and reload for the next deals.

Speaker #13: And so we'll still use that type of a structure. Right now, our permanent debt, or the bonds that we have, are running less than one turn of EBITDA.

Speaker #13: So I think our capital structure is quite flexible. And we're not capital constrained. So from a balance sheet perspective, we could go higher on leverage.

Speaker #13: I think if we did that, it would be very opportunistic. And there'd have to be a pathway to generate significant cash to bring us back down in the two times two and a half times leverage ratio.

Carlos Macau: I think if we did that, it would be very opportunistic, and there'd have to be a pathway to generate significant cash to bring us back down in the, you know, the 2 times, two and a half times leverage ratio. I mean, I would think that that's something that's doable for us. I don't think HEICO is gonna be a 7 times leveraged business. That's not in the cards for us. I'm not gonna rule out for an incredibly good acquisition. If we went to that level and had a pathway to get it back down into the twos over a reasonable period of time, we would certainly consider that and execute on it if it was good for our shareholders.

Carlos Macau: I think if we did that, it would be very opportunistic, and there'd have to be a pathway to generate significant cash to bring us back down in the, you know, the 2 times, two and a half times leverage ratio. I mean, I would think that that's something that's doable for us. I don't think HEICO is going to be a 7 times leveraged business. That's not in the cards for us. I'm not going to rule out for an incredibly good acquisition. If we went to that level and had a pathway to get it back down into the twos over a reasonable period of time, we would certainly consider that and execute on it if it was good for our shareholders.

Speaker #13: I mean, I would think that that's something that's doable for us. I don't think HEICO is going to be a seven times leverage business.

Speaker #13: That's not in the cards for us. But I'm not going to rule out for an incredibly good acquisition if we went to that level.

Speaker #13: And had a pathway to get it back down into the twos over a reasonable period of time, we would certainly consider that and execute on it if it was good for our shareholders.

Speaker #12: Yeah. Thank you. That's really helpful. Yeah. No. Yeah. Thanks, Carlos. And then I guess just one on ETG. I mean, I guess was the government shutdown at all related to any of the mixed impact that you guys discussed in the quarter?

Matthew Akers: Yeah, thank you.

Carlos Macau: Does that answer your question?

Matthew Akers: That's really helpful. Yeah, no, yeah. Thanks, Carlos. Then, I guess just one on ETG. I mean, I guess, was the government shutdown at all related to any of the mix impact that you guys discussed in the quarter, or is that not the driver?

Speaker #12: Or is that not the driver?

Eric Mendelson: That wasn't the driver. It did have some impact, a little bit, stuff shifting out, and so, you know, we'll pick up the benefit of that later on in the year, but I wouldn't call it a material impact.

Speaker #13: That wasn’t the driver. It did have some impact, a little bit. Stuff shifting out. And so we’ll pick up the benefit of that later on in the year.

Speaker #13: But I wouldn't call it a material impact.

Speaker #12: Okay. Thank you very much. I'll leave it there.

Matthew Akers: Okay, thank you very much. I'll leave it there.

Speaker #13: Thank you.

Eric Mendelson: Thank you.

Speaker #12: Thanks.

Carlos Macau: Thanks.

Samara: We'll take our next question from Gavin Parsons with UBS.

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

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

Speaker #14: Good morning. You have Max Miller on for Gavin.

Max Miller: Good morning. You have Max Miller on for Gavin.

Speaker #15: Good morning.

Eric Mendelson: Good morning.

Carlos Macau: Good morning, Max.

Speaker #14: Good morning, Max. How's it going? It's pretty clear that a lot of the tightness in the aftermarket and some of the OEM pricing you're seeing actually increases the value proposition of a HEICO alternative.

Max Miller: How's it going? It's pretty clear that a lot of the tightness in the aftermarket and some of the OEM pricing, you're seeing actually increases the value proposition of a HEICO alternative. If we, you know, hypothetically flip that script, what are the implications for HEICO in a world where maybe, you know, some new aircraft come online, some of the older platforms come out of the fleet and, you know, aftermarket, or at least the fleet age begins to normalize a little bit? Does that change the math for PMA utilization and where you see HEICO thriving?

Speaker #14: If we hypothetically flip that script, what are the implications for HEICO in a world where maybe some new aircraft come online, some of the older platforms come out of the fleet, and aftermarket or at least the fleet age begins to normalize a little bit?

Speaker #14: Does that change the math for PMA utilization and where you see HEICO thriving?

Eric Mendelson: We don't think so. I mean, our business is always impacted by, you know, first and foremost, the growth in fleet hours or available seat miles. Then it is, you know, the subcomponents of that are, you look at the age of the aircraft. I mean, you've got this 20 something thousand aircraft fleet, which is aging 1 year per year, and the OEMs do a really good job of making sure that they escalate prices very aggressively to make up for any of that, you know, to take advantage of that. Then when you look at the fleet retirement, you know, that typically hasn't been a big part of the equation, but it is something that we continue to look at. There are also...

Speaker #13: We don't think so. I mean, our business is always impacted by first and foremost the growth in fleet hours or available seat miles. And then it is the subcomponents of that are you look at the age of the aircraft.

Speaker #13: I mean, you've got this 20-something thousand aircraft fleet, which is aging one year per year. And the OEMs do a really good job of making sure that they escalate prices very aggressively to make up for any of that to take advantage of that.

Speaker #13: And then when you look at the fleet retirement, that typically hasn't been a big part of big part of the equation. But it is something that we continue to look at.

Speaker #13: There are also I think there's a very big opportunity for all of these new aircraft that have been delivered roughly over the last 10 years.

Eric Mendelson: I think there's a very big opportunity for all of these new aircraft that have been delivered roughly over the last 10 years. The price of the spares on those aircraft is significantly higher than on the spares on the aircraft that they replaced. If you look at line for line, you know, the same line replace, LRU, on an older aircraft versus a newer aircraft, the newer ones are significantly more expensive. All of this is to say, I think I agree with you. I think our value proposition increases substantially, I think that we're going to be in a very good place. We're already taking advantage of the opportunity in a lot of these markets, I think that will continue.

Speaker #13: The price of the spares on those aircraft is significantly higher than the spares on the aircraft that they replace. So if you look, line for line, at the same line-replaceable LRU on an older aircraft versus a newer aircraft, the newer ones are significantly more expensive.

Speaker #13: So all of this is to say I think I agree with you. I think our value proposition increases substantially. And I think that we're going to be in a very good place.

Speaker #13: We're already taking advantage of the opportunity in a lot of these markets. And I think that will continue. Thank you.

Max Miller: Great. Thank you. I'll leave it at one.

Eric Mendelson: Thank you.

Speaker #1: And we'll take our next question from Michael Sharmalvi with Truelist.

Samara: We'll take our next question from Michael Ciarmoli with Truist.

Operator: We'll take our next question from Michael Ciarmoli with Truist.

Speaker #15: Hey. Morning, guys. Thanks for keeping getting me on here and sticking around. Maybe quickly Eric, just to go back to John's energy line of questioning and I don't know if this is a quick one or a conversation for a bigger conversation for another time.

Michael Ciarmoli: Hey, morning, guys. Thanks for getting me on here and sticking around.

Eric Mendelson: Good morning.

Michael Ciarmoli: Maybe quickly, Eric, just to go back to John's energy line of questioning. I don't know if this is a quick one or a bigger conversation for another time, but the CFM56 and its potential use in the power generation market, you've obviously got a lot of content on some of those legacy platforms. Should we expect that, assuming it gains traction in the energy marketplace, can that be a significant tailwind in terms of those platforms, generating, you know, a materially more amount of parts, you know, thinking that they've got life after or additional life, you know, besides kind of in the traditional aircraft market?

Speaker #15: But the CFM56 and its potential use in the power generation market, you've obviously got a lot of content on some of those legacy platforms.

Speaker #15: Should we expect that assuming it gains traction in the energy marketplace? Can that be a significant tailwind in terms of those platforms generating a materially more amount of parts thinking that they've got life after?

Speaker #15: Or additional life besides kind of in the traditional aircraft market?

Speaker #13: Yes. I think definitely. When you look at the aeroderivative market, there is tremendous life in repurposing those engines. There are many companies doing that, whether it's on some of the old CF6s or the CFM 56s.

Eric Mendelson: Yes, I think definitely. When you look at the aeroderivative market, there is, you know, tremendous life in repurposing those engines. There are many companies doing that, whether it's on some of the old CF6s or the CFM56s, but the use of the HEICO parts in those, repairs and overhauls is, I expect, going to be substantial. I think that there's a very good tailwind for us there.

Speaker #13: But the use of the HEICO parts in those repairs and overhauls is, I expect, going to be substantial. So I think that there's a very good tailwind for us there.

Speaker #15: Okay. Okay. I'll keep it at that since we're running long anyway. Thanks, guys.

Louis Raffetto: Okay, I'll keep it at that since we're running long anyway. Thanks, guys.

Speaker #13: Thank you. Thanks, Mike.

Victor Mendelson: Thank you. Thanks, Mike.

Speaker #1: And we'll take our next question from Jonathan Siegman with STIEVEL.

Samara: We'll take our next question from Jonathan Siegmann with Stifel.

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

Speaker #14: Good morning. Thanks for fitting me in. And congratulations on the quarter. Real quick.

Jonathan Siegmann: Good morning. Thanks for fitting me in. Congratulations on the quarter.

Speaker #16: Thank you. Thank you for joining us.

Victor Mendelson: Thank you.

Jonathan Siegmann: Real quick-

Jonathan Siegmann: Real quick.

Victor Mendelson: Thank you for joining us.

Speaker #14: Just one for Carlos. Just looking back at space organic growth and ETG in the Q last year, it was exceptional. 13 and a half million dollars year over year.

Jonathan Siegmann: Just one for Carlos. Just looking back at space, organic growth and ETG in the Q last year, it was exceptional, $13 and a half million dollars year-over-year. You're going to give us how much it was down this quarter. Can you in this Q, can you preview what that decline is?

Speaker #14: So you're going to give us how much it was down this quarter? Can you and this Q, can you preview what that decline is?

Carlos Macau: The decline was. Yeah, I can give you some color on that. The decline in space organically was in the high single digits for the quarter, compared to Q1 of 2025. As Victor mentioned earlier, Jonathan, it's not a result of order volume kicking down or backlog not being there. It's really just a function of shipments. Always is with space. I wouldn't read too much into that, to be candid with you. I think you'll see some of that recover in the subsequent quarters as we catch those shipments going forward. Is that helpful?

Speaker #15: The decline was yeah. I can give you some color on that. So the decline in space organically was in the high single digits for the quarter.

Speaker #15: Compared to Q1 at 25. And as Victor mentioned earlier, Jonathan, it's not a result of order volume kicking down or backlog not being there.

Speaker #15: It's really just a function of shipments. Always is with space. And so I wouldn't read too much into that to be candid with you.

Speaker #15: I think you'll see some of that recover in the subsequent quarters as we catch those shipments. Going forward. Is that helpful?

Speaker #14: Yep. I think that shows it has to do with that great strong comp last year and the other question I've heard folks ask us is you have exceptional positioning with the legacy space and defense hardware providers.

Jonathan Siegmann: Yeah, I think that shows it has to do with that great, strong comp last year. The other question I've heard folks ask us is: you have exceptional positioning with the legacy space and defense hardware providers.

Carlos Macau: Mm-hmm.

Speaker #14: How is your penetration with new customers in this area? Are you guys able to maintain a position with these new people in space and defense?

Jonathan Siegmann: How is your penetration with new customers in this area? Are you guys able to maintain positions at these new people in space and defense? Thank you, guys.

Speaker #14: Thank you, guys.

Speaker #16: Thank you, John. It's a good question. The answer to that is yes. We picked up a number of new space and defense tech customers along the way.

Victor Mendelson: Thank you, John, that's a good question. The answer to that is yes. We picked up a number of, you know, new space and defense tech customers along the way, and so far, we're holding on to them. The way we generally look at it is that we are going to supply the customer base. They need our parts, our products, regardless of who they are, and for the most part, that seems to be holding true. Thanks for the question.

Speaker #16: And so far, we're holding on to them. The way we generally look at it is that we are going to supply the customer base they need our parts, our products, regardless of who they are and for the most part, that seems to be holding true.

Speaker #16: Thanks for the question.

Speaker #14: Thank you.

Jonathan Siegmann: Thank you.

Speaker #1: And we'll take our next question from Tony Bancroft with Gabelli Funds.

Samara: We'll take our next question from Tony Bancroft with Gabelli Funds.

Operator: We'll take our next question from Tony Bancroft with Gabelli Funds.

[Analyst] (Aiera): Hi, good morning, gentlemen. Great job. Thank you. You know, mine obviously is revolving around the defense budget. You saw, you know, you saw the proposed, potentially a $1.5 trillion budget. You know, even if that doesn't, even if that doesn't, you know, come to fruition over a number of years, it's still, that's a big number, just, you know, just directionally. How do you see that impacting your business? Maybe just broad strokes on that, and then obviously, all the announcements earlier this year from the Department of War, on the programs, you know, Golden Dome, Arsenal of Freedom, you name it.

Tony Bancroft: Hi, good morning, gentlemen. Great job. Thank you. You know, mine obviously is revolving around the defense budget. You saw, you know, you saw the proposed, potentially a $1.5 trillion budget. You know, even if that doesn't, even if that doesn't, you know, come to fruition over a number of years, it's still, that's a big number, just, you know, just directionally. How do you see that impacting your business? Maybe just broad strokes on that, and then obviously, all the announcements earlier this year from the Department of War, on the programs, you know, Golden Dome, Arsenal of Freedom, you name it. You know, how, what have you been told that you've spoken to the Department of War and, just maybe a overall view on those dynamics?

Speaker #17: Hi. Good morning, gentlemen. Great job. Mine obviously is revolving around the defense budget you saw the proposed potentially a $1.5 trillion budget. Even if that doesn't even if that doesn't come to fruition over a number of years, it's still a big number.

Speaker #17: Just directionally, how do you see that impacting your business? Maybe just broad strokes on that. And then obviously all the announcements earlier this year from the Department of War on the programs drone dominance, arsenal freedom, you name it.

[Analyst] (Aiera): You know, how, what have you been told that you've spoken to the Department of War and, just maybe a overall view on those dynamics?

Speaker #17: How what have you been told? Have you spoken to the Department of War and just maybe overall dynamics?

Speaker #16: Well, first, Tony, thank you very much for joining us and for your comments. And we very much appreciate them. In terms of the outlook for us, the impact on us, first question that you asked, the impact on us of the increased defense budgets and some of these orders, the definitely is beneficial.

Victor Mendelson: Well, first, Tony, thank you very much for joining us and for your comments. We very much appreciate them. In terms of the outlook for us, the impact on us, first question that you asked, the impact on us of the increased defense budgets and some of these orders, that definitely is beneficial. I mean, obviously, the devil will be in the details, ultimately, where that falls over the years. From what we see and have heard, and we talked a little bit earlier about some of these multi-year buys that the government is doing on programs. We're on both sides of the business. This applies to both the Electronic Technologies and Flight Support groups.

Speaker #16: I mean, obviously, the devil will be in the details. Ultimately, where that falls over the years. But from what we've seen and have heard—and we talked a little bit earlier about some of these multi-year buys that the government is doing on programs we're on, on both sides of the business—this applies to both the Electronic Technologies and Flight Support Groups.

Victor Mendelson: There's definitely an impact and a benefit, maybe we're even seeing some of that in our backlogs now, and that's a, that's a good thing. In terms of the Golden Dome possibilities, you know, it's not that completely defined publicly, but from what we know and what we see, it consists of a lot of existing programs, particularly, obviously, missile defense programs. Again, we're on both, on both sides of the business, you know, Flight Support and Electronic Technologies. We're on a lot of those programs, and there appear to be some newer, tracking and reconnaissance parts of that system. We are, you know, from what we're told, some of the things we're selling on, I can't go on, obviously, specifics, but we're told that they are for Golden Dome.

Speaker #16: There's definitely an impact and a benefit and maybe we're even seeing some of that in our backlogs now. And that's a good thing. And in terms of the golden dome possibilities, it's not that completely defined publicly.

Speaker #16: But from what we know and what we see, it consists of a lot of existing programs, particularly obviously missile defense programs. And again, we're on both sides of the business.

Speaker #16: Flight support and electronic technologies, we're on a lot of those programs. And there appear to be some newer tracking and reconnaissance parts of that system.

Speaker #16: And we are from what we're told, some of the things we're selling on, I can't go on. Obviously, specifics but we're told that they are for golden dome.

Victor Mendelson: You know, there's no Golden Dome department. You don't get a letterhead that says Golden Dome. This is officially Golden Dome. There was this list of companies they put out as primary vendors, but remember, we're down a layer in the supplier base. Then, of course, as I'd answered earlier, I mentioned, you know, the defense tech guys are participating there, it appears, in a variety of ways, and we're picking that up as well. Overall, both are positives for us, and we feel good about them on, again, both sides of the business.

Speaker #16: There's no golden dome department. You don't get a letterhead that says golden dome is officially golden dome. There was this list of companies they put out as primary vendors.

Speaker #16: But remember, we're down a layer in the supplier base. And then, of course, as I'd answered earlier, I mentioned the defense tech guys are participating there.

Speaker #16: It appears in a variety of ways. And we're picking that up as well. So overall, both are positives for us. And we feel good about them on, again, both sides of the business.

Speaker #17: Thanks so much. Great job.

[Analyst] (Aiera): Thanks so much. Great job.

Tony Bancroft: Thanks so much. Great job.

Speaker #16: Thank you very much.

Victor Mendelson: Thank you very much.

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

Samara: We'll take our next question from Louis Raffetto with Wolfe Research.

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

Speaker #17: Hey, good morning, guys.

Louis Raffetto: Hey, good morning, guys.

Speaker #16: Good morning, Louis.

Victor Mendelson: Good morning, Louis.

Louis Raffetto: Maybe one for Carlos. Just, the stock comp expense was pretty high in the quarter. I know it was sort of called out in the press release as well. Just curious, does that level continue throughout the year, or does it step down, or does it ramp up?

Speaker #17: Maybe one for Carlos. Just the stock comp expense was pretty high in the quarter. I knew it was sort of called out in the press release as well.

Speaker #17: Just curious, is that level continue throughout the year? Or is it step down? Or does it ramp up?

Carlos Macau: It's a good question, Louis. The, if you recall, you may remember last year we talked a little bit about the performance feature that were attached to our options in 25. What winds up happening is when, you know, normally, our options historically have always just been time-based. They vest over 5 years. Now, we added a performance feature last year for growth in the business, and what winds up happening is the amortization of that expense actually accelerates as a result of that. It's, it's a, it's part of the accounting rules that drive us crazy sometimes, but nonetheless. What'll happen is, we'll probably catch a little bit more of that elevated expense the front half of this year, and then it'll taper off towards the end of the year.

Speaker #15: That's a good question, Louis. If you recall, you may remember last year, we talked a little bit about the performance feature that we're attached to our options in '25.

Carlos Macau: It's a good question, Louis. The, if you recall, you may remember last year we talked a little bit about the performance feature that were attached to our options in 25. What winds up happening is when, you know, normally, our options historically have always just been time-based. They vest over 5 years. Now, we added a performance feature last year for growth in the business, and what winds up happening is the amortization of that expense actually accelerates as a result of that. It's part of the accounting rules that drive us crazy sometimes, but nonetheless. What'll happen is, we'll probably catch a little bit more of that elevated expense the front half of this year, and then it'll taper off towards the end of the year.

Speaker #15: And what winds up happening is, when normally our options historically have always just been time-based—they vest over five years. Now, we added a performance feature last year for growth in the business.

Speaker #15: And what winds up happening is the amortization of that expense actually accelerates as a result of that. It's part of the accounting rules that drive us crazy sometimes.

Speaker #15: But nonetheless, so what'll happen is we'll probably catch a little bit more of that elevated expense the front half of this year. And then it'll taper off towards the end of the year.

Speaker #15: And in fact, as we get into the following fiscal year, it should taper down probably on par or lower than what it had been historically because we would have amortized a lot of those 25 grants in fiscal '26.

Carlos Macau: In fact, as we get into the following fiscal year, it should taper down, probably on par or lower than what it had been historically, because we would have amortized a lot of those 25 grants in fiscal 2026. Does that help?

Speaker #15: Does that tell you?

Louis Raffetto: I appreciate it, Carlos. Yeah, I know how much you love all the accounting on that.

Speaker #17: I appreciate it, Carlos. Yeah, I know how much you love all the accounting on that.

Speaker #15: Yeah. Right.

Carlos Macau: Yeah, right.

Louis Raffetto: Maybe one for Victor and Eric, just kinda, again, big picture here. Obviously, you guys have grown a ton over your 36 years. You're kinda in the $5 billion neighborhood. Just how do you guys think about the scale of the business, the sheer number of underlying, you know, businesses that are operating? You know, at some point, you know, do you see some other potential portfolio action as making sense?

Speaker #17: Maybe one for Victor and Eric, just kind of, again, big picture here. Obviously, you guys have grown a ton over your 36 years. You're kind of in the $5 billion neighborhood.

Speaker #17: So just how do you guys think about the scale of the business, the sheer number of underlying businesses that are operating and at some point, do you see some other potential portfolio action as making sense?

Victor Mendelson: Yeah, listen, we've been able to adjust and grow with the business and morph, if you will, the organization as we've gone. There was a point in time where everything reported either to Eric or to me, this is Victor speaking, reported to one of us, and over time, we've gone to more of a bit of a working supervisor model, if you will. Really extraordinary and talented people who show an ability to handle multiple companies at one time and acquisitions, as well, multi-site situations, for example, and they are leading groups. We've been breaking this down into groups on both sides of the business, and that's gonna continue. The acquisition, you probably noticed, the acquisitions we've made have generally been into those groups or into or under reporting to another subsidiary.

Speaker #16: Yeah. Listen, we've been able to adjust and grow with the business, and more of, if you will, the organization as we've gone. There was a point in time where everything reported either to Eric or to me.

Victor Mendelson: Yeah, listen, we've been able to adjust and grow with the business and morph, if you will, the organization as we've gone. There was a point in time where everything reported either to Eric or to me, this is Victor speaking, reported to one of us, and over time, we've gone to more of a bit of a working supervisor model, if you will. Really extraordinary and talented people who show an ability to handle multiple companies at one time and acquisitions, as well, multi-site situations, for example, and they are leading groups. We've been breaking this down into groups on both sides of the business, and that's going to continue. The acquisition, you probably noticed, the acquisitions we've made have generally been into those groups or into or under reporting to another subsidiary.

Speaker #16: This is Victor speaking. Reported to one of us. And over time, we've gone to more of a bit of a working supervisor model, if you will.

Speaker #16: Really extraordinary and talented people who show an ability to handle multiple companies at one time and acquisitions, as well, multi-site situations, for example. And they are leading groups.

Speaker #16: And we've been breaking this down into groups on both sides of the business. And that's going to continue. And the acquisition you probably noticed, the acquisitions we've made have generally been into those groups or into or under reporting to another subsidiary.

Victor Mendelson: We wanna keep that talent doing it that way, and we think that's very scalable.

Speaker #16: So, we want to keep that talent doing it that way, and we think that's very scalable.

Victor Mendelson: We want to keep that talent doing it that way, and we think that's very scalable.

Speaker #17: Great. Appreciate that, Victor.

Louis Raffetto: Great. Appreciate that, Victor.

Speaker #16: Thank you very much.

Victor Mendelson: Thank you very much.

Speaker #1: And at this time, I will turn the conference back to the management team for any additional or closing remarks.

Samara: At this time, I will turn the conference back to the management team for any additional or closing remarks.

Operator: At this time, I will turn the conference back to the management team for any additional or closing remarks.

Speaker #16: Thank you very much, everyone, for participating. In our call and for those who asked questions, we are always available. That's Eric, Victor, or Carlos, for any of your additional questions that you may want to ask offline.

Eric Mendelson: Thank you very much, everyone, for participating in our call and for those who asked questions. We are always available. That's Eric, Victor, or Carlos, for any of your additional questions that you may want to ask offline. We look forward to speaking with you again on our Q2 Fiscal 2026 Conference Call at the end of May. Thank you very much, and this concludes our call.

Speaker #16: And we look forward to speaking with you again on our second quarter fiscal '26 conference call at the end of May. So thank you very much.

Speaker #16: And this concludes our call.

Samara: Thank you. This does conclude today's call. Thank you for your participation. You may now disconnect.

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

Q1 2026 Heico Corp Earnings Call

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