HEICO (HEI) 24 Feb 212021 Q1 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to the HEICO's Fiscal Year 2021 First Quarter Earnings Results Call. Certain statements in today's 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 as a result of factors, including: the severity, magnitude and duration of the COVID-19 pandemic; HEICO's liquidity and timing of cash generation; lower commercial air travel caused by COVID-19 pandemic and its aftermath; airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase to our costs to complete contracts, governmental and regulatory demands; export policies and restrictions; reductions in defense, space or homeland security spending by U.S. and/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; development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales; our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk, interest, foreign currency exchange and income tax rates; economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues; and defense spending or budget cuts, which could reduce our defense-related revenue. Parties receiving -- listening to this call or reading a transcript of 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. extent to a or future result otherwise, to obligation statement, any events no law. except as applicable whether of the undertake publicly revise update forward-looking or We by required new information, I now Mr. over the turn call to and Mendelson, Laurans CEO. Chairman HEICO's you, sir. Thank

joined Victor Corporation. by of you very Mendelson, to Co-President thank I'm HEICO and HEICO's Teleconference. Fiscal Earnings and morning joining And here you First call. HEICO's President good much, I'm Eric to we Vice Group; Announcement Chairman of President and CFO. HEICO's Quarter everyone Thank this of us, and Carlos Larry the and on morning We for President Flight you and CEO Executive Macau, HEICO's Technologies Co-President Mendelson, and Electronic Mendelson, welcome Support our Group; 'XX HEICO's

pandemic, Before HEICO's performed I all the way thank detail, get have the about really who this of is into like admirable in I to would a year. some which extraordinary most now members into team of during

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interest pandemic anticipate in calls, should As becomes we reemerge. that widely air mentioned consumer available, travel as commercial prior more the we to begin in vaccine

by continuing demand the Summarizing 'XX for the fiscal of quarter I of highlights products despite 'XX, the was from of and to was cautiously first second the activities operating by cash XX% flow cash 'XX. pandemic, we increasing fiscal that million of our in the tell difficult very first quarter operating to of provided generate improved towards environment such, half aerospace would flow. As the fiscal up HEICO million strong, in And fiscal $XX.X continues recover slowly first $XXX.X 'XX. that you anticipate our excellent quarter to commercial results. created

quarter income consecutive continue by its $X.XX equity income paid we for cash XX%, compared a per quarter improved January a second first in by We at our 'XX Board in an electronics while ongoing current strong net and of softer sales as at debt impact obvious. operating share, of clearly XX, of in 'XX. confidence sales respectively, and our improvement quarter compares of demand dividend In and XX, as to XXXX. and dividend 'XX, the of represented increased of October very face HEICO's X%, since Group. challenging regular to and the of coupled strength that Operating with commercial XXth and XX% the through semiannual our aerospace XX% to semiannual sequential health gave ETG, organically the net our support cash this the fiscal first in fiscal dividend products. the flight pandemic. respectively, Support quarter XX, improvement paying resulted fourth Total consecutive encouraged our XX.X% of are XX.X% 'XX, fiscal the future, ongoing HEICO's in cash for shareholders' that's Net and grew for as 'XX, the to products pandemic's optimism sales to space January conditions, Flight

cash 'XX, ratio which equivalents XX% as to improved October million shareholders' debt as of January of to XX.X% from as of $XXX.X XX, and that Our 'XX. 'XX. down of equity less debt, total net was XX, is cash And January XX,

of down XX, 'XX. to XX, Our from X.XXx And net January was 'XX. improved X.XXx debt-to-EBITDA on ratio October that as

utilize as or maturities aggressively accelerate shareholder to Propulsion debt maximize plan we extended both week, financial growth the Mars significant Landing. our acquisitions their have on proudly congratulations our we various successful Perseverance until flexibility high-quality fiscal Rover and pursue no to sizes Last return. known 'XX, JPL, Jet and and and Laboratories, to strength of publicly have to NASA We

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ability I Eric this the and HEICO's would HEICO Rover the discuss to and think Support extreme Group. Support into -- our he like we Co-President on quality Flight of and Group, these of that Mendelson, Flight Perseverance the built will I the that for supply that subsidiaries introduce time, they want unbelievable to President electronics Landing. results technical focus Mars of At

of lost the our from of Support cost The efficiencies you. of lower sales Thank commercial Flight Flight quarter margin the and The first million 'XX. the Flight that aerospace lines. as at the effect 'XX. services FSG mentioned the the impact the sequential quarter quarter across and fiscal third in net all was is first million the the fixed in The XXXX first first to of XX.X% Group's fiscal and global impact of in significant 'XX. FSG Group's the for higher our FSG margin of quarter decrease compared XX% as fiscal lower of products pandemic. 'XX gross was Support expenses Support the principally amortization reflects 'XX of product fixed principally of the were reflects resulting and and first lower margin as its decrease cost XX.X% from in sales 'XX. margin fiscal full the pandemic. efficiencies net segment $XXX.X attributable 'XX and since in $XX the our the million mentioned $XX.X as asset principally margin Through the lower organic quarter operating the of the affect operating to have fourth quarter XX.X% in stemming from a 'XX. demand first in quarter income in previously aerospace profit services of and SG&A well and to point would of gross improvements of quarter previously gross fiscal of we decrease lower disciplined operating sales $XXX.X operating sales margin. margin 'XX an percentage The air quarterly The in reflects out increased of pandemic compared increase was principally The mentioned a to in previously operating lost net travel compared decline just operating profit the to delivered commercial net from first fiscal as expense. X.X% from impact fiscal cost net in beginning The operating the I fiscal to steadily sales profit to reflects to practical the and products has Group's The management, as mainly in intangible the of third began of fiscal majority the in million quarter quarter like fiscal commercial decrease income

valuable is Our and most team assembled asset. workforce members our

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Mendelson, results like to of Electronic would Technologies Group. Now HEICO's Group, of Electronic the the I Victor HEICO Co-President and Technologies of President introduce to discuss

throughout gratitude And taking have And the proud pandemic businesses carried at time. throughout they'll done like and they've essential the our as that job very including this people as I Electronic I efforts to And many echo continue the for I'm and my out. difficult our entire know care you. remarkable home in. have very work their during well team this this people businesses to that of XX% work all excellent difficult our to of years have About thank that operating and Technologies other. been from those members, before, of do cannot as safely each to very period and would of the Eric, HEICO's come carefully also Group,

$XXX.X turn margin, decrease the partially a 'XX. a principally lower gained growth. operating percent in of sales, fiscal the certain sales acquisitions. of sales XX.X% to first back million quarter X% of products mainly income by quarter and reflects in fiscal The a in profit net sales increased first quarter up our net in margin increase decrease quarter sales income certain net million Group's Mendelson. up in 'XX. product fiscal efficiencies 'XX, our the of over the Larry increased fiscal the of sales margin expenses profit to 'XX $XX.X previously from as The performance, as commercial as of and quarter from net Group's first defense favorable percentage impact net million net 'XX. lower in X% reflects previously attributable compared reflects The $XXX.X from to The This a first mix mainly aerospace call is SG&A fiscal lower fiscal a sales Technologies operating Electronic products. to from to net was in partially electronics offset I'll the 'XX Electronic sales XX.X% offset gross The in from certain the increase by Technologies the of first gross mentioned $XX.X a favorable million operating first Electronic growth. mentioned principally Group's lower Technologies net of the 'XX, products, less fiscal an the for quarter increase with in the As of principally of

Thank you, Victor.

option income that sales asset a net balance 'XX, in certain from fiscal of $XX.X income $X.XX was the facilities. the and Moving earnings quarter quarter fiscal partially $XX.X the offset of 'XX. share the $X.X fiscal in compared in the of the the The of expense 'XX on decrease in of other the million, down average price commission, intangible in marketing 'XX net under tax both and lower benefit borrowings first HEICO's amortization 'XX. performance-based intangible from in 'XX. impact holding G&A stock from as in offset Consolidated first increase 'XX in previously Significant was which expense was noncontrolling due acquisitions. principally expense; $X.X travel; in of subsidiaries of first of appreciation fiscal reflects a by a interests income decrease Flight was option operating result sales, credit other SG&A fiscal 'XX sales fiscal expenses, X.X% of the not lower was the of the reduction per from $X.XX that diluted was higher and held. quarter reflects quarter fiscal 'XX million of the million in about first of $XX.X our the consolidated $XX.X rates, the decrease compared of tax amortization the million R&D revolving of principally from sales weighted expense. interest strong the the attributable more to G&A in of the quarter partially benefit higher results was principally to totaled million first fiscal in the are first the quarters net really in million of first of the decrease higher expense to average 'XX. income in product first result XX.X% exercises HEICO's option at fiscal asset which decreased income fiscal are higher of including new both of support. higher fiscal 'XX weighted and significant. Other Interest recognized up interest and options and in X.X% was quarter percentage compared expense, stock $XX.X in million expenses. The million net expenses to of tax 'XX. and flight a benefit respectively. fiscal or income other first expense income tax and 'XX share. less percentage $XX.X expense. 'XX, Group benefit compared and of quarter of SG&A expense decrease quarter the Support in Consolidated reflects exercised. interest $XX.X of stock million well selling efforts $X.X and fiscal 'XX, percentage quarter as and interest lower from per incremental in in in income the in to tax of Net of noncontrolling million quarter of first 'XX operating HEICO and quarter a larger compensation Depreciation that to sales of first continuing noncontrolling $XX.X quarter expense $XX development decrease fiscal the fiscal reflects quarter The The million compared to to our the That ETG sales. was mentioned The of the to quarter million of that $XX.X as the flight quarter to to by $X.X The fiscal compared a increase in as attributable the fiscal of impact a and in decreased as quarter The in first exercises to 'XX. of during reduction first quarter discrete of outside first principally quarter first first expense and in first 'XX were as and million and 'XX stock Consolidated the reflects: fiscal a that the fiscal an in expense principally million in was periods SG&A first that the by SG&A XX% consolidated 'XX XX.X% was million amortization both net expense first in in or first of period, 'XX. of 'XX. lease $X.X support, fiscal recognized the quarter 'XX,

FY a to effective income. now of we full and of XX% pretax XX% rate For the tax approximately noncontrolling interest rate estimate 'XX, combined

of over flow. very forecasted strong. position The to financial Moving cash balance cash HEICO remains and sheet flow and

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Of course, all of credit for No closely than order collection our accounted to sales. monitor to XX% net receivable we in more customer limit continue one efforts exposure.

sales X fiscal customers and about quarter of represented XX% Our of top 'XX, in XX% net consolidated 'XX first and respectively. the

rate 'XX, turnover our October 'XX. certain an increased HEICO's for despite pandemic of products in to $XX the since future to excellent done XX, $XXX inventory believe ended support for January of for the demand compared certain really lower levels net which a That volume, appropriate as has subsidiaries rate XX, and first And mainly in to XX, the we XX, turnover the inventory backlog, consideration the And controlling by of backlog job increased have consolidated are 'XX, sales. rate, million expected The 'XX. fiscal from million increased XXX 'XX. reflects days which was -- the on impact net of turnover principally pandemic sales the ending period on January period XXX pre our in days services. Our increase resulting January quarter

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this earnings net 'XX provide Given this at uncertainty, we guidance cannot time. and sales fiscal

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Instructions]. [Operator

We have the question from Robert of line your Spingarn first from Credit Suisse.

this you M&A today. earlier in sell will has numbers What point? Larry, company less pandemic pursue start more could are at policy. of M&A? evolved? set with on trend-wise a the or you seeing the think sellers market the Are willing as to you said continue I Good strong to I that

of we equity. coming a of out lot some it Well, private coming product of of out see --

are a recovery, Group, pulling them the because a down, their are lot their and to be activity sellers sales will willing hoping tougher So Support Flight which for sell. have of coming. I In it's little know profits gone

becomes you're And really EBITDA However, of small equity things. they're reasonable Others a And line are us private opportunities, price the down we in sold you're we're M&A we're traditionally guys. we companies. have probably doing business tires. has a checking multiples, at out, prices. potential and it But the But and of are have the more bottom They sellers when difficulty And seeing backlog XXx that all gate. never it's private slowed looking looking kicking logistics XX, much which hereof more usual. dealing that these company the of at we dealing up who possibilities, difficult. when And little companies our is getting the many at probably are tires, speed. with kicking out to particularly at information with before, larger the also the and very bit, us the at looking size-wise, is some buy as

currency, times, the a close I a wants We the where -- but which of matter So seller transaction, physically high answer are you at there's know is don't you one ever if of HEICO multiple, your as for is asked constrained. many we shares. been know, use fact, selling course, -- not would -- acquisition? We've And it'll and yes. as

we call, So our have on said the cash. currency, last this cash. have I we

have and won them. have stock we We

we're guess So they sellers like. you would to give whatever we'd give too. the bitcoin, I ready give them --

M&A? a more opportunity on side Are business, been aero any question. commercial That end defense and less historically, seeing or the of Victor's types was we opportunity little acquisitions. with the active, space the my of of terms next more markets, the in you've in But

earnings my as Rob, current are this commercial. is opportunity Eric. depressed. out, What we dad -- the But of pointed level are in seeing

down still narrow are opportunity. little there, prices to seeing difficult plenty but So of it's we a

Okay.

Okay.

of other about I couple of wanted you a things just ones. ask couple a to ETG. Just Victor,

and Could the you factor You a how what's as industry. it's have very driving clearly, and this growth electronics. that, guess, space then talk XX% been aero commercial XX% in I about bit strong defense and a other was did? little And separately, across

I Yes. talk throughout you strengthen year strengthen this Rob. are it good building our us us we Thank year heard saw you, about think we last and space, On to orders for that Those and into continue questions. felt increasing. that would will backlogs

think effect bit, a perhaps and We destocking fairly on built think been space so there that for those the see has us inventories And that out And started some point. as on a flatten seeing our the first in inventories, been markets, at I weren't And of as the wore for was order terms period out And much it, the -- has reversed, through pandemic quarter some that on. inquiry really that. was in call other well. about we're follow-through I've I would in of of And all. expect broad-based we continue but and followed a, I really as to firm before, very that fourth electronics to that's which the and or at then quarter. the And did side, weakness, talked really up customers time more see nice.

bit. it's like feels that moment, kind aero, down bit the by at the better, to in move still but right Commercial continuing of direction. looking So

some into tone trajectory. at delayed follow Flight say, Defense, same see wound our things general I as moving Support defense. And same that that the should this Group, point, out and with getting but up the would side you we think I on end, that second not for a the have delivery. delivery waiting as built much things were been chain our well inspection so as on with and actually really quarter, result customer supply and their actions as had of

anybody. expect bit that. surprise expect of any that's say saw us move move And thumb, markets think So would generally defense out. to talked firm we've forward. don't flatten I see I rule to see as a to would we as I as as a would we out I little And of we up medical about,

doctor that. were elective tended last to reverse And think like and the I we more comfortable so procedures returning as softer things think of offices cessation people to and they on. I feel of doctors' to beginning year because all and know be visits that's

Right. And just quickly on your margins.

are Your in mid- that. the And being in just assume about level call commercial? something down? Is but that's anything quarter. wanted magnitude mix. about dipped else? there it's always commercial little does XXs, the, ask of up maybe to they that you margins or I I bit here a different quarter reflect high there it, Or the to this

Yes.

strong commercial business. business Our very of is a kind

So therefore, it's a high-margin business.

X out that If when So running, defense say, cash trails point let's hard the what really the And It too margins, side, XX% we we that we're X.X on call there's side. after tends -- an so this mean, what that also beyond people. I was margin, on don't amortization talked was further number, probably defense But we margins. mix off, additional or it before, report. and right, obviously, that I'll to saw and to about our beyond year, the operating amortization, headwind. mix the which there's in I hit the period definitely go the we've margin of points last margin, about have the there, we this a real point is which X

and really look, say, much within doing, us so, lower XX%, at XXX your say this in on are And I comfortable points the look this and margins or knuckles part opposed say always rack we're don't ask, heard down be?" XX% as -- don't basis if you've up think think or year. it I look I comparable that it people XX% I where going conferences on. range, up XX%. we're points or is basis if you do generally hard. they're we "Where XXX before I at I I So giving But if many they're I to us out, we people more the to -- although actually were how think calls even and mean, on to was take so you last and

what, we So are to that's expecting. with consistent think, honest, what be I

Okay.

and On potential of just to of up signals air for starting set Eric, are quickly. Okay. restocking here customer get you any trying to flow airlines behavior, recovery order summer? the see in

regard over. Yes. of come I'll I May the then as happening. And to correctly in away. really that seen destocking that the of called answer as we market think were it that first so when they With called inventory. also, quarter, to have order the I much said was we've restocking by same since I other we say but the correctly this talk in companies depletion we've was our about it. thing, saying think need items, and And out we fourth restocking, right bottom And customers wouldn't seen

-- really mean all of they're doesn't parts. and the that out all lot of of So we they they're there's not But shelf need, parts a but on don't they out that inventory, now safety stock. have the

seen no, yet. So that don't we've I restocking think

think being they're I very careful.

somewhat a If And other of in particular, a as what really just we in position bottom, passenger airlines right spring, at saw it you in we're to are restock. miles the and now also, with look, to the those what's whole right bunch similar the in Europe now, markets on well. seeing cratered in not going

know see hold come. no, predict, And think the to But the which going come. until in start But I moment. what's going they're virus. variants yet cash going to think to going the really travel, I it's hard happen with possible that airlines with until is don't off -- to restocking to that that and really seeing all think we surge the last spending on benefit you're to would a is I So I these very obviously,

the line from of from Baird. comes Peter question next Your Arment

wanted Rob asked Eric. on about, just up just to just follow I what

ask less I to but qualitatively share. helpful. a give it to you've just just know out in any guess, the you're the could that about potential more some downturns, pickup us share. Just conversations increase maybe past restock, be would I talked you've able the coming you of in having color that way, different Maybe there about about about of maybe been

heads the optimistic that where all the tell are of opportunities heads they extremely and with areas. those We're diversified. of We're our are customers. recovery those sales you And can company. a very many terms understand position I to as well respect of the optimistic. as in HEICO our optimistic are with and in no Yes, Yes. small I've spoken terms our color is of to discussions. different business very We're in longer

our and I think savings, think a I relying forward. position customers going very us. cost trust going on that be to in us to we're deliver unique They're

workforce aggressive. I that most cuts comments the my much our their both much If cuts that far in of held our percentage to we our colleagues alluded of ours. industry, than and higher percentage workforce far on than a you I protected and their competitors think at look aggressive a competitors. know more our higher to or I more of were that were larger in smaller

the in their to are to people couple hang we mining So other are I a rebuild also think can where We they've to that working tell airlines some And to we're difficult. to think them those a be work days, try workforce at decided strong are every workforce. moment, week. have don't things position. very have you on of that in going I I a where to days opportunities. remotivate workforce. and don't they're There partial rotating are We

I we've more and new customers. out from our as relationships with people. very But complicated, where product well is our that the getting the comments people got it's those So about both coming we're as are think touch excited getting that in

going through without a offers type savings buying technical pandemic HEICO risk. no-brainer the this, a products we generate after think because of is I like that

think So that's specifically optimism. understand me and people that, the what gives I

there? maybe would just -- your the kind you're of expect existing customers, expand then new some interest your that that as also, Would your you that you reach in characterize And show you customers seeing products? maybe

of deal we say I everybody. there's that not new a because much Yes. correct. customer is mean I opportunity would with lot pretty

do And we with OEM. The just for we're the are in that I much us products are share, pretty market more this majority our that haven't we want take more do the minority we very customers as to take increases, offer means sold well. However, a interpreted OEMs aggressive say, as do businesses out little continue of we because will share, in piece, and think well past. you're the And we not take though of variety correct with no wanting been them well less in will business on focused models price be that to have will very that trying would intact. think to point are also, even should they're and that a penetrated I OEM whole we their penetrated, to I market that where believe very we I the the existing, customers

then Right. Right. just ones, And Carlos. quick two

is a the quite call Just what a tax to And then trend out? was clarification also up there. the Anything you kind year. rate to just balance the wondering CapEx on the for year-over-year. expect bit of the what And be of just

sure. sure, Sure,

ETG and have plans in some in their support facilities. So both to growth. had our them equipment capital new are expanding CapEx was budgets footprint more some expansion our of group, We their up. for some two Actually, the in to with floor they're space where we

And so would, quarter, the that that spend, the of numbers. half see about year -- that we last in which was expansion you for was type growth didn't if

a accelerated that's So it's bit. why

the And then on rate? tax

Yes.

tax we So up we're I the think wind rate, HEICO that is, this XX% for to to earlier mentioned rate. XX% seeing what Larry going year expect

year, to on And for X% income. of the the breaks could pretax Both I think XX% tax be are percentages effective somewhere, XX% down rate. X%. NCI tax rate then to the that those

So that's rates. where kind my of on is head those

Nice results, guys.

you. Thank

from Cowen. of the line Your Khanna question from next Gautam comes

debt Carlos, or this there quarter? FSG expense for elsewhere bad any was at First,

cadence our I bit pluses mean little have we normal always minuses of for and HEICO. on a

what There buckets days in I any anything there were we no or think that's or QX. receivable experienced bankruptcies, large weren't like that.

it was under regard. in much So as normal usual side, it's on bad times -- debt business that the pretty

amplified So no any there one-timers charges. or

bad in what if margin that's you QX, Okay. high I mean was sequentially like the were Because is, incremental right? the is it XX% to out in -- million strip debt it's to $X.X of interesting, it incremental mean that was fairly FSG. margin. right? I I want just

absolutely. consecutive the that The incremental now. are two row quarters seen on in rebound, We've Yes. high margins a

that's at correct. look sequentially, it you If

and if by the repair various trends if any PMA talk Eric, in products about just FSG, differing could So submarkets. maybe, seeing if obviously, seeing the you versus you there? you're But the And products. could specialized the you're submarkets disaggregate what

applications Sure, PMA the component in and been parts aviation commercial the the but products as well as defense, to and go down. build distribution commercial as in because the business, that The the see, down specialty which in well significantly the Gautam. products market as The be new builds. overhaul gone commercial rates the obviously, specialty continues you to would primarily And has Not area area. in most. includes as our be commercial have -- that area down

aftermarket you'll So and a our parts the less specialty little see repair was than and actually -- overhaul replacement products. down

However, our military business there. a lot also through goes of

in on provide. why. one in products strong, and the I that's was Defense what is But we general, So of the reasons say, relatively that hit. particular, commercial still would space,

So if indication. an that gives you

the there versus any in distribution direct discernible channel sales? Yes. difference you're control That's demand-wise helpful. And seeing between that what you the guys is

similar all area. would say the it's I No. in

where defense We just time I'm Victor, wouldn't when happens? on Okay. think of XXXX, the side frame ETG single-digit And curious, mind, see Or frame declines end flattens should comment, do what your from you is it? there? how and that's guiding we mean, defense the one I for in out. low that the of then of you sales primes it if up you for growth think we tracking eventually do kind sort

of as early the it handle budgets days a on set, is know, administration, And as for And for it of pretty think It's difficult the 'XX like I have in me. budget course, are to really good these or the to of fairly anybody. sort known. of but -- budgets course, and feels direction that they probably well

can be variations fiscal for the sure there Although year. government in current

out. I for now various reasonable certainly of And we're watching waiting the call as democrats, we're anyone So think to them like they've for example, And has. coming like, shakes in reasonable I all said, between where I just comments DC a think on all I'll it handle and see and struggles the got, as example, the doves. daily the hawks out situation,

Control not saw that thing so Act just least, But and Obama where there in we kind pans does does seem see one movement And toward of it wait out. this to it be in Budget the think very administration. appear I that we'll is the the

that's positive. think And a so I

would of targets target? on Is for Or other one of for And use as that you stock. a would that not large can words, where anything that one acquisition? of at you're by have kind That's these prefer Is type million one to I for the was would to $XXX -- you, needle currency it in M&A? stock your stock the remark be contemplate you're inclined you'd the actually deals, it of some but helpful. Larry. looking about moves -- that be intrigued about say reserved actually

As it's one. reasons, people, are We'll who well, and certain -- really -- number get for probably you know, stock our for preference believers very number Occasionally, prefers these get has HEICO. two, always rare. in And long-term will been to tax somebody pay we cash. ones, because

us. impact. to And the they And matter do give in this to If to as don't would cash. but alternative it we it. the want want them have will cash, we accretive cash case. make and way doesn't sell if as is have giving and only same earnings stock that it -- really I know, the is want mean could it and would stock, by you So it still acquisition can we we we

enough, But we want badly case. So unusual give the stock. deal this we them again, is an really would if

infer And I it. a deal big that Got of... it's not should because

No. No. No, from at you can't inferences that make all. any

of the is next Solow CJS Securities. The Larry line from question from

It's for Pete Larry. Lukas

everything. most covered have guys You

kind your Any months close the one. question, common love over and between X% the would shares. XX% lack A think thoughts thoughts. Discounts to price a of thereof X one ago makes on random Just waned or the sense, we to today, which but from to disparity hear

you. lot makes sense. with We it of think agree a We

question this times, been really we we've idea over answer. no have have asked the and many never the years, -- We

office, so much. -- think the a whole think speaking hell we think for we it I the I has that makes think a of of in sense and everybody difference corporate shrunk lot now, I'm

as to shares. is, buying off I the just a But and what guess, A -- It's that at than So guess. shares the lot they're reason can HEI better I a venture. -- investors the discount of but realize all that's a

all discount they with believe maybe should fact, times at pari. the traded shares be mean add in they at were a X% there be And should we not I to HEI. par when been even when issued, I'll that, a there that had originally

at originally traded they HEI. a premium to actually, Well,

a was time, yes. There

next Ken question line Canaccord. is of Herbert from from the Our

off you couple of I thinking years, First, the in step-up seen you've in sequential to first if ETG missed second Victor, should first expect how nice the over the quarter? we here you about segment -- sorry 'XX? but earlier, within similar the last progression margins quarter. a margin from step-up are really the it Can Or a the

careful. much to I think point, we've uncertainty. a got At still this be little too there's

still up out. yet. too so So just pretty are We're pretty a and and margins, quarter. of see -- where I one said within trying don't comes into it we but feels we'll is to me the before, with stick where much in safe which Not or I'll to know XX% be way, and our I evasive, what down, or I early think really

What headwind Okay. in Fair quarter? was amortization the the enough.

Can it? I take

Sure.

acquisitions about was of there prior 'XX. around There did Carlos. for related about year, an was that amortization is this done that -- roughly absorbed the expense Ken, QX million we acquisitions we was those in the to $X.X additional in and

through that So margin. that the in incremental expense ETG's amortization the went would uptick OI be

restructuring OEM we've seen because I in on starting if hear just Eric, getting material, one cutting to you. a the risk and the We're is greater some delays perhaps And for could, and little cost that industry. of about all Perfect. just

presenting your side, distribution risk product on you you. if opportunity segment? PMA of an the in from delays how perhaps and to portfolio, Are As look -- potentially the think that think you be you at you're yet some about clearly, opportunities material? benefits seeing the emerges, a from been suppliers? or opportunities line, seeing emerge always Could And some I as that's do delays for risk risks it that any potentially your from OEM

Yes. That's a good question, Ken.

pretty OEMs businesses seeing cutting of happy in and inventory. have inventory back a position to opportunities all because expansionary result need we capital constrained. customers were maintain are because in the an we our not we're market market. sufficient as We our careful of of We And some view the

be to happy. of perspective very are So you don't seeing opportunities And we that want people to. alluded we from And scarcity. we deal view of a

think required well I run, think to that I will the satisfy pockets the that our that, flex demand. are there OEM in and said of are going the Having be inventory competitors opportunities. our order -- are and -- to build up to competitors be is they able

will, specked think you help I if get yes, on us some it products. out So could

So that us. of is a potential opportunity area for

Eric, PWXXXX, I some the around for finally, know of of potential accelerated I or the typically there's unfortunately, seeing And been market imagine engines? a if any obviously, you significant to you any retirement PWXXXX. been, engines, about risk don't talk Okay. Are tragedies you discontinuance sort but can types incremental over those of there's time. some just that's of

and this we to extenuating come be engine blade reason incident. mention, the that not us. about HEICO unique this could the for have And of impact it's engine. of kind did I to that release. don't to course, susceptible parts on PWXXXX will major course, anything think that, not to We, kind a HEICO that's are I going because of issue. does that of have the out this on parts do have circumstances produce We're knowledgeable of contributed which of that very fan

appropriate. thermal with XXX. I imaging fan feel the out comfortable come that on a think AD entirely the and I blade would flying FAA hollow PWXXXX-powered they've to sufficient mandate is is composite the of

I get think control under that quickly. to they're this going

of none a look, caused crash. incidents you If the

a and such shows it Whitney to an & product think very a Pratt event. high-quality to I that really job so designed And great withstand did be able

for sell to that do will opportunity think our us engines I those come in do So there for as be service. parts

But them roughly to aircraft, of the know, think are those half more have issue. Pratt capable you I pandemic. good this been perfectly As and that resolving due of grounded is than

from Sachs. question Goldman of comes Poponak Noah from next Your the line

FSG the only to the Carlos, the even $X.X that and in debt was pieces some it back quarter, quantified you moving expense, last discussion of there. though million. of -- the had mean margin I bad

close this to quarter, of lack now assume I X? interpret is the can that, pretty quantification So that that to

but say the was rate. of that It's wouldn't had it's numbers $X It or million. Well, less It's it something, we zero. million in zero, certainly It's wasn't more run the certainly not QX. just flux in sticks quarter. any there $X.X the Noah, in a this I out wasn't normal No. than

debt Got fiscal you back it the inventory also, first then quarter? to of in obsolescence you had spoke in reserves few was over bad Okay. it. addition that the half that the Did year. last sizable expense. And last in quarters, And have number the to somewhat again a

No.

down. last guess, we that if specific little were -- bit took that now. taken we have We recall, bigger hits for question The I a last being year, answer we reserves the fleet of some put is aircraft that retirements because year you have had right and were to that

the that that reserve. you then you of do had So we of you into do volumes reserve kick we're project little your a demand FSG, in up this slow-moving lower that we situation a get near sales experiencing took And some stuff to stock. term, the XXX% wind with bit and in over when

that, have say, any Noah, in we being QX than have same call the is It would but let's to it noteworthy so pace. that, a And different little about as been, bit maybe nothing is 'XX. of of out

Okay.

a with guess in back of of FSG we half year pickup at what the today? margin much getting those at your But the seasonally pretty volume kind margin we XQ some how the usually close to are lift presumably, now looking know of there's lower the normal. items I year. normal then be through should And year. is or So of the at

we've allowed cliff if now or giving guidance that And a would participate foresee, not wouldn't in margin. sequential having real the growth a I would. even it's or though we're right the us in be ability going the say I see I we where continue demonstrated market we're cadence. Well, careful, don't this, to don't you up, think to don't scenario I has

I think logical. going steady year I We're normal we at see some to do marginal there volumes a in progression think the our it's to get 'XX back in that going improvements not my judgment. pick But it's we'll up and and towards point. out be as play as

think about the of you highly the If is it structure variable. FSG, cost

We components. very little fixed have cost

volumes do get up, the kick as we our cliffed in So margins.

see 'XX. you'll throughout So that

you XX% the margin quarter-to-quarter it. time. Victor, specified over past the But or And the on to that have or spoken items. to mix should Carlos be then margin, other guys segment's the XX% you Got lumpiness ETG from in have range in that,

changed make Just holds there. to still want sure nothing that has and

Noah. Carlos, is this -- mean I

you a how Could talked push sure 'XX because that's necessarily out. basis, the I lumpy a have 'XX that and we about thinking annual and I'm and an past, year think on a we'll mean? pulls normal about normal the normal -- tick normal higher? range. margins call year, because not could. going quarter-by-quarter But what you're as yet, I a and we've range, tough lower? Are the in tick you would you're I 'XX segment on year, a in year, be do I normal a plays Of course, you think call of real think But it's to what know In a and it if are expectation-wise, the to I business. year so aware see it know XX% I yet, see XX% I mean? I wouldn't

getting Hopefully Sure. there.

around recent of And some nondefense on rate, with in in then Okay. that's you. going the the been revenue against with chopping the pieces growth ETG -- a organic bit there quarters

the give in quarter, us annualizing start to the expect reason of the consistently segment to fiscal be at will definitively that a model, you positive start territory? back Looking your the Can starting get rate to of growth organic to the second decline. quarter, next

pandemic. our shell-shocked. the answer that half is The straddled in came this initial question to quarter whole quarter half the So right? have the I this is is quarter think byways we was good, second that kind to That of pandemic, from is

the we comps answer got QX a yes, kicks the business half And and to lumpy that get was that will drug to with. expect we we commercial kind So QX the helpful down ETG's and one deal business year, question, margin the into traveling, that start us people still and area the to this to vaccine quarter your the as of get back the in pick will easier. of be the that But compared of because as 'XX. aerospace up,

then Okay. down free only 'XX cash of Carlos, lastly, I free challenges. into And flow. to all just the a X% fiscal wanted little dig further flow is cash despite your

I last know just helping I still we grows in CapEx, have period should 'XX versus be that that up year. where you is Or the fiscal you? anything again that, was there thinking on Your XQ higher a does reverses it 'XX? you that Is comparing to of free time. from year-over-year 'XX XQ despite but have up versus cash that here? abnormally guess normal go

with on flow further go free Just any where from here business. thoughts you of the cash

as plays free we XXX% income. year net of say, No. operating do I Look, think flow, think cash on of conversion flow, out, think that run I around of, should I terms the our rate in if a cash let's

to problem believe traditionally free cash to time talking do. The uncertain I income net careful we're now want is an about -- rate, which flow because that hard predicting be that's us, granted. you're numbers will it our at we'll is with about. very help I number So convert is where for our and right that

want net we not until some kind to numbers be out, flux. give XXX-plus to that here guidance just point want -- when have on -- percent. we'll certainty I to still get see where because you I I probably it's the now, so And a converted we income it -- in careful know I of flush don't right

not going about on markets, more that's a get in more right we their like to bit table. start and subsidiaries the things As as get But we'll -- confident that. little guidance more end just was now, I our talking say,

That's the which that for last And for XQ. the would capital I piece, expenditure just had effort into the approximately the had quarter, discussed put case? million expansion $XX the that Is think year, helpful. you pretty you number loaded

planned -- exactly this and part We this, that's had is of case. on no Yes, was the correct. the million. it surprise. That's We $XX

of was onetime a was So it or that thing. quarter. 'XX, a back million then sort kind a of beyond -- sub-$XX And 'XX

Beyond 'XX, goes back up?

And along look, and things amplified. for This kind planned. expansion. our every for of facilities modeling think year, sales, of your point, X.X% somewhere that's QX, a generally But think it's I together. I we way we've somewhere 'XX thinking Yes. or about year, terms one our capital of the graduating about have We your where or you're bigger to and around a about think -- in facilities bit growth of CapEx between thinking potential and trended. like always that, think to needs mean being model that's if I you more that have put having it if you're conservative that's little

Your next question Michael Securities. Truist line comes the from of Ciarmoli from

Nice -- could field if results, to if one, wants I know as Victor, on this the Maybe backlog. But maybe always. Carlos. don't just you touch it's who Eric

$XXX million. as out it called you think I

there maybe And So you in more or any the you a Can lines some uptick. give color in FSG? terms strength more nice there? seeing product disproportionately Were breakout of by us little sequential ETG on color segment?

for most you kind and the in Michael, the follow sure to FSG, because and have that -- you up. want eat the FSG, take I'm a get month, guys the part, a defense what we you may for has as But the by of that the ton the stab, of do backlog I'll business nature. not backlog. kill know, everything, you have most doesn't a its order. part, It's The

and seeing the ETG, general and -- things backlog space we're that seeing And in out within we're first mentioned, through we're strength as electronics that expansion half seeing that. the through backlog some the of Victor lot FSG our like parse has ETG. in come a defense year to So in of this and of in the

is and down. think I -- aero defense ETG is there in commercial right is pretty now. stable. lumpy, backlog but It's the And

expansion of So not at we're backlog seeing the that moment.

kind So the of that's breakout of it.

age mean are of pickup lower presumably helpful. the been XXX, help on content kind guarded No, past newer, parts given guys the, And on trends older fleet on, support on airlines. this significant of the think, just to side in and the you the in there's kind seeing younger call younger Are emerge I fleet? and reduced of you significant got tilts you've Eric, seeing utilization support still fleet of retirements? do the some more the some of this a but the -- positioned, you've you're then Okay. that's bit it, pretty on maybe XX pandemic older know as planes. the we from a what of bookings of a I quantify? through you amount or pretty us you Can little obviously,

positioned well Yes, Yes. is question, on think That's a I equipment. great short the newer Mike. we answer the are

to those that customer approvals in and areas. A of think on very well we're lot customer interest do that. I going

more to thought be that pandemic aircraft as position In -- would some these early and on having reason you've have have to the And sense leasing to for lot life when it end simple that point set lease lot for home it a a parts; banks in some to is of exist we the they up options: makes replace two also would that new addition, the up out. the the would lessors retired a already aircraft. the got we think for one is finds and that, two them, go out as not or them, took and it

as build going much to have price the the rental we was that where -- was impact. to was and thought So new the point fall of going greater not to a the going where that to rates, make it sense

and that if help impact card the have And newer wild of the subsidize, could will, new both to in impact. the some equipment, course, environmental United of equipment. the is Europe, the that extent governments, Now States of you an

We sort And if of the a -- of much lot seen taking the really underestimated of amount look, decline, the rates they're build down. that and haven't you of they that. have

new would So Coming on the sanguine little say to I back build rates. a the levels. that XXXX we're

continue I a still think to economic the equipment of operate. older, lot that will

And both well in so equipment as well I older the to be think positioned equipment. as we're going new the

is the it. And prices, which it. close everybody Got mean, watching this helpful. That oil could these throw climbing. keeping older kind enough That's of that Presumably, with customers. some equipment, to airlines. keep of cash-strapped for industry wrench I think a I sure, in Got into you're

So indicator are I'm well. guys sure you as watching that

of of lower We in here climb United I the the recent lot cold that had cost still was we've lot airlines. so think equipment with I are. its And should due makes think the sense that to acquisition States. snap older a the that the And a pass, for

what point, see hang do to the them equipment at what -- to to increase is in think below of were the And face don't actually, the newer the retirement. So spoke So I to we're gone aircraft you in on number going it older thought didn't was your think, But equipment where we've people even well. both cost the I big commit this of I side through? estimates retirements, the And wants and we retired the and a who we just in spectrum lot there that I and sides. of was base of on be. low going mean we well, view. positioned share of

called that I you Carlos, aerospace Did decline Just rate all of entity just have had, the quarter I of across a get guys one XX%. trying out down to there. Last fourth commercial the of was think the sense you in it. Got this quarter? number

of all fiscal called quarter? I out have what aero total, XXXX in think for you did 'XX but did fourth in fiscal it you or

I the was quarter in off it fourth don't of recall what that.

I right. in It did for that or -- quarter the was don't it We what the disclose year. the year. mid-XXs the recall You're for was. that fourth like like something

Sterling Colin comes from question line next Your of Capital. from Ducharme the

just trying questions progression take quick just at Perhaps of answered, one incremental margin were for a angle. from my Carlos. the look to Most a a different but

the to capacity, And and human human the that's revenue base a have on to structure, had sustain, perhaps can from expense your the best back guys clearly, built revenue, resourcing a how a into be? Carlos. could is business I for basis, your You if question expense my me incremental much kept percentage like sustain, capacity you through might But mean guess resources with current given what culture, level. the it higher current and and pandemic, totally understandable. seems

to we back I I quite right which that And will that's some you think you is businesses will have in the what happen business don't we'll that what -- as are see the on to sales on. handle I FSG, more have in have a as up sales I in get that expenditures. you'll bit picks clarity is we be. up, our because saw the think positioned slow be Well, what focusing to for what costs we that those sales we 'XX, going percentage are total going Colin will But problem, now see upward. tick have to don't of our catching us a is think expands. as you're growth to that some hires a but Naturally, levels some leverage grow, fixed

going but magnitude rise. have we We or that the to a the know of that don't rise, steepness sense they're

sales a we meaningful in sizable flex the got to before we're But as and So nimble, make business we're out current and will jump very can pretty sitting hires. necessary. as go here we today, handle

you Okay. better push the the Is bit a attractive option more Can X follow-up, Carlos, on exciting X to not Victor, i.e., quickly of time poised very umbrella? the an country. the positioning for franchise And share. about through and to share, little and be the even for the but recovers HEICO you just about for continuing time, quick which positioning just congrats again as take Perseverance a the then base you umbrella that here? more price maybe with given talk as Carlos and the opportunity then Eric. somewhat the price, therefore, to over is a company that take pandemic. OEMs talked normally HEICO's customer that even landing, just price you would for economy disparity, to for be recovery, making surprising And widening for the health

if putting Earth, parts, memory, positions on cetera, if still where and Mars. are of variety an here a You share for participate but is et on any even crossover sensors, guys radar? in vehicles market opportunity your what on to there's early Wondering electronic that's on electronic growing still are large fluid, vehicles

pricing committed umbrella, So respect and first. the this ahead customers With start Eric. treat I'll our is we extremely well. go to

moderate for we they them long for commit increases so if period time. us to price And a of

would XX a and still price that widen our been And to board. where, and share. push could limit market on question more below fair for to add XX% XX our the sort greater result those that future their But general, us we're can could. increase a I path right of absolutely the you're opportunity to we wanted us we're it XX%, across rather we this on to as yes, has time. no able and good So There's pricing a continue been OEM that. mean, value, voluntarily I and that of give OEMs, in being the to The would part price order from they've to somebody -- decided much to years, then -- more price say, if margin limit opportunities up capture if over in a does we umbrella buying very end pricing a the year, we get that and earn we've we got able we've is growth products point

have the have increases. Others But they've price pandemic. been margin it's as usual. board moderate the much across surrendered to say Some make to lost slightly to of due their more raise the business up would substantially all price order that of in in decided pretty I

enhanced HEICO has even for been the during value pandemic. So And the then Victor?

wouldn't automobiles. good big you're answer vehicles, call it businesses very actually. it The yes, our appreciate to and And I asking by some thank cars, not on part company It's complement our on and you, people is insightful. of business. Perseverance. autonomous I the -- of question, a it's way, for a the to And are working our It's our

has low-margin and is is for you We'll develops. of be to think tend in it some not as the lies. higher-margin a question know, the high-end, end, be high-volume, potential Part which often tend see automotive us. I how extreme we we it to where producer,

can with they agreements us. automotive the Unfortunately, the on Carlos, some -- we're And working it Is on development into if those, have... tends And more But subject be it to term? see I the companies involved for as do so companies, say doing to who the are end. companies turns with, because kept not secret. it's how there by on the end? right were we'll tech you the well it's programs specifically automotive develops opportunity to disclose are that just applications. we're now, have specifically it or confidentiality want something but and way, the an really longer Or in we I more what can't development we're So tell

I have said I said better. it have couldn't better, couldn't Victor. it

were you that answer? one there Was going to

actually. Eric it I care think of took

the line question Konrad Jefferies. Greg is next of from from Your

quick Just quick ETG. One follow-ups. two -- on

space I mentioned last then of in government about? broad-based much Mars terms think around was some how opportunities. space about Any was commercial maybe you versus Any the and we segment. space year, mean of X/X color granularity but is Rover, I around opportunities defense breakout? these you mentioned of new And drivers? the hear

Yes.

are mean it things then and and X% or It sense as there tends of you And a of I get communication So little space launched, than most certainly, year, was space on get it's But commercial as that heavily it is is it's today breakdown what part been. for be there giving next And the XX%, if side, are year. the The where branding Rovers is course, better that a just will, and It up more between doing. you're to satellites. companies number most of course, back of but of it's of to the not some Earth satellites. be no wears commercial satellites XX% know tends us, expect and July comparable we when defense. in on into is be as to year quarter tends on us, we're now, that you each will. a part, X% XX%. on sales, well the It's getting last about noteworthy. built to supplying aviation and nice. rights, we're electronics I revenue government around we in the for that if But there you and bread-and-butter as in business broad-based. is each of terms it the toward and space to our Perseverance, commercial between the observation and it's right, half launch running more year. launched are heavily get profitable that is growth how into And based X/X; not the from XX%; and And business bounces exploration on, other would other the observation, kind on, markets, XX% are and of as lot X% aviation a of vehicles. range. obviously, to our And medical But a markets, around more year you components satellites sub-XX%

we broadly that's where So mine.

kind eventual think mean And that improvement then on in I quick earlier When up we call. a of aftermarket, mentioned question the FSG. the you about of just you're the should in seeing regions others? at we're that recovering kind ahead capacity the what trends of regional we And the is [indiscernible] in be that should of terms follow of trends? looking with

Yes. Absolutely.

a sure to could make before They start believe, see down drive early road. airlines There it. got a that slightly nailed a be bit ready I recovery surge got that bookings, drive what's to recovery. aircraft if get to an be think it, prepared, you I that think for, of the may the I little going they've they as

[Operator Instructions].

Louis from UBS. from question another have We Raffetto

I the in? Just in the SG&A coming Carlos, bit up the performance the quarter. maybe a Because take that that think also reserves, margins? the from sort the bad one clean you down, that on of back? of back me. tick coming is the Is bit little a Is back debt just and if SG&A add some some FSG inventory of comp margins that weighed what expense trended but did maybe

in performance-based and The the XXXX comp first comparable. quarter fairly of XXXX were

year, remember, bonuses. -- we had very low because So last

So in we're as the folks this see green process do wanting we shoots of some our forward. to year, take going care

I to speaking, don't seeing, with in the great tick as of in QX when compared We with I anything QX the experienced quarter to cost we're what be inefficiencies, think that do bit, have not 'XX. we're little experiencing only could it's fixed the I comp. think some performance-based that it 'XX. to had to sales a way a you, is think to catching comparatively So candid put the in SG&A started our up Lou, still we 'XX. of has is And we're leverage it, that

where parts, I is sense -- then, XX% side prices And side? Just share the that you -- talk Are XX% MRO taking just or MRO I cases. of of get side? on a some point, guess, the you taking, Okay. That's do competitive. that lower extremely to you to in see that more the parts have the you Eric, the on your share as trying the competitive take could to place? think obviously,

Yes.

the XX really in buying right -- as board to customer and would it's XX businesses. been for, for, benefit first who's our that years. a think to be committed of the across to something you're of us all XX% I say, XX% I for who's mentioned, all, Yes, the price

-- be come and mean of would not where box. I we the the out maximum. that that's So

look So if of say, roughly XX% as just the percentage parts cost. repairs, typically, at of a you repair,

benefit across board the in -- we competitive do. PMA side. the very So you're in we're the be everything would right think that the that extreme more But on on cost I particular,

primarily And your I it's I'm for just to X% ETG. correct Okay. but think me earlier Great. wrong, now And point, if is XX% to Victor, OEM. aviation of you,

guidance, just business? So all is that defense so particularly in that is are mean what in about the uncertainty ETG? uncertain I it defense, have where you primes guys else

is this Lou, between ETG aviation. OEM So aftermarket for The Victor. in roughly commercial is split business and

which if you've probably improving aircraft is also got MAX, uncertainty I mean production seems which we've aftermarket, production direction. what to And So that the a is explains new pretty new that there the in the was in right which disruption of lot in now the the resuming in had be and much we're direction. got rates right? think production, and mean moving which at, stopped. moving looking right I uncertainty is I again shifting, in

that's generally I optimistic know why direction don't And moving timing. about that the we're just so commercial aviation. exact the in

think that XX.X% think asked I was earlier someone for about, quarter. it I minus And Okay. the fourth number

there. So just so it's

no There are time. this please at questions continue. Mendelson, further Mr.

in I the want HEICO. for very everybody you call much. your interest on thank Thank to

you in call. And available, conference, As not, at QX remain X to have you happy you. the if a Carlos be which look will I Victor, if speak months. know, give Eric, you be to forward speaking we us with will or about to questions, we

to So soon. all. stay well, healthy. And speak you stay real we'll you Hopefully, get vaccines. Thank

you Thank participating. conference this for Ladies and call. today's gentlemen, concludes

day. disconnect. Have a now may great You