Welcome to the HEICO Corporation First Quarter 2025 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. Factors that could cause such differences include the severity, magnitude and duration of public health threats, such as the COVID-19 pandemic, HEICO’s liquidity and the amount and timing of cash generation, lower commercial air travel, airline fleet changes or airline purchasing decisions, which could cause lower demand for goods and services, product specification costs and requirements, which could cause an increase to our cost 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, 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. 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. I now turn the call over to Laurans Mendelson, HEICO’s Chairman and Chief Executive Officer.

Thank you, Samara, and good morning to everyone on the call. We thank you for joining us and we welcome you to this HEICO first quarter fiscal 2025 earnings announcement teleconference. I’m Larry Mendelson, Chairman and CEO of HEICO Corporation. I’m joined here this morning by Eric Mendelson and Victor Mendelson, HEICO’s Co-Presidents; and Carlos Macau, our Executive Vice President and CFO. Before highlighting our exceptional first quarter of fiscal 2025 results, I would like to personally thank HEICO’s incredible team members for their hard work, dedication and commitment to excellence. Their tireless efforts to exceed customer expectations and deliver outstanding results with unique efficiency are the driving force behind our remarkable success. Your efforts and accomplishments continue to shape HEICO’s bright future. We’re very proud of our first quarter results, which reflect consolidated margin expansion, strong cash flows and record net sales in both of our segments. I remain very bullish on HEICO’s ability to win new opportunities during fiscal 2025. As we look ahead to the remainder of fiscal 2025, our team is filled with great optimism. The current U.S. administration’s pro-business agenda aligns well with our long-term goals, providing an environment for innovation, investment and expansion. With our strategic focus on key markets like defense, space and commercial aviation, and the exceptional talent and drive of our team members, HEICO is uniquely positioned to capitalize on new opportunities and sustain our momentum across diverse industries. Summarizing our first quarter fiscal 2025 results, consolidated operating income and net sales in the first quarter of fiscal 2025 represent record results for HEICO, improving by 26% and 15% respectively as compared to the first quarter of fiscal 2024. Consolidated net income increased 46% to a record $168 million or $1.20 per diluted share in the first quarter of fiscal 2025 and that was up from $114.7 million or $0.82 per diluted share in the first quarter of fiscal 2024. Net income attributable to HEICO in the first quarter of fiscal 2025 and 2024 were both favorably impacted by a discrete income tax benefit from stock option exercises. The tax benefit in the first quarter of fiscal 2025 net of non-controlling interest was $26.5 million or $0.19 per diluted share, and that was up from $13.3 million or $0.10 per diluted share in the first quarter of fiscal 2024. Excluding the impact of this tax benefit in both periods, earnings per share increased $0.29 per diluted share or 40%. Flight Support Group set all-time quarterly operating income and net sales records in the first quarter of fiscal 2025, improving 22% and 15%, respectively, over the first quarter of fiscal 2024. The increases principally reflect strong 13% organic net sales growth, mainly attributable to increased demand for the Flight Support Group’s aftermarket replacement parts and repair and overhaul parts and services product lines, and the impact from our profitable fiscal 2024 and 2025 acquisitions. The Electronic Technologies Group operating income and net sales improved 38% and 16%, respectively, over the first quarter of fiscal 2024. These increases principally reflect strong 11% net sales growth, organic sales growth, mainly attributable to increased defense, space and aerospace product deliveries, and the positive impact from our fiscal 2024 and 2025 acquisitions. Cash flow provided by operating activities increased 82% to $203 million in the first quarter of fiscal 2025 and that was up from $111.7 million in the first quarter of fiscal 2024. We continue to forecast strong cash flow from operations for the entire fiscal 2025. Consolidated EBITDA increased 22% to $273.9 million in the first quarter of fiscal 2025 and that was up from $224.4 million in the first quarter of fiscal 2024. Our net debt-to-EBITDA ratio was 2.08 times as of January 31, 2025, compared to 2.06 times as of October 31, 2024. Acquisition opportunities and M&A diligence efforts within both of our operating segments remain highly active, reflecting a robust pipeline of potential targets. We consistently seek complementary acquisitions that meet our strategic and financial goals. This is guided by a disciplined approach that we pursue acquisitions that make financial sense and are accretive to our earnings while enhancing long-term shareholder value. In January 2025, we paid our regular semiannual cash dividend of $0.11 per share, which was our 93rd consecutive semiannual cash dividend since 1979. We were also very busy with acquisitions, having completed several key acquisitions in fiscal 2025’s first quarter. In November, our Exxelia subsidiary acquired 70% of SVM Limited, a designer and manufacturer of high-performance electronic passive components and subsystems primarily serving the healthcare and industrial end markets. In December, we secured an exclusive license and purchased key assets from Honeywell International in order to support the Boeing 777 AIMS and the 737NG/P-8/E-7 VIA product lines. In January, we acquired a 90% interest in Millennium International, a business jet avionics repair company, which complements HEICO’s growing avionics repair capabilities. All of these acquisitions were funded principally using proceeds from our revolving credit facility and cash provided by our operating activities. In addition, we expect each of these acquisitions to be accretive to our earnings within the year following the acquisition. At this time, I would like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO’s Flight Support Group, and he will discuss the first quarter results of the Flight Support Group.

Thank you very much. The Flight Support Group’s net sales increased 15% to a record $713.2 million in the first quarter of fiscal 2025, up from $618.7 million in the first quarter of fiscal 2024. The net sales increase in the first quarter of fiscal 2025 reflects strong 13% organic growth in the impact from our profitable fiscal 2024 and 2025 acquisitions. The organic net sales growth mainly reflects increased demand for our aftermarket replacement parts and repair and overhaul parts and services. Wencor continues to exceed our expectations and this was an excellent acquisition for HEICO. Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs, which has translated into excellent growth opportunities and success for both our legacy businesses and Wencor. We continue to operate Wencor as a standalone business operation. I have defined our strategy as cooperation, cash, capabilities and consistency without consolidation. The results have proven this to be the absolutely correct strategy. As I’ve mentioned before, we continue to make good progress working together in serving our customers in a combined, seamless fashion. Some examples of how we are working together include, one, utilization of all HEICO and Wencor PMAs and DERs at all repair stations; two, commercial and defense aftermarket sales cooperation; three, Wencor e-commerce platform lists all HEICO non-competitive PMAs; four, Wencor is utilizing HEICO’s manufacturing base to quote and build many new products; five, engineering and regulatory cooperation; six, sharing our best in-class vendors; and seven, our back office synergies such as payroll, insurance, retirement benefit plans, cybersecurity and export compliance that will help offset additional regulatory compliance costs such as SOX and our FAA, ODA. Flight Support Group’s defense sales continue to grow, presenting a strong opportunity, especially as the current U.S. Presidential administration prioritizes defense and cost efficiency. As one example, we are making progress in setting the path to selling aircraft replacement parts to DoD agencies, building upon our efforts over the past two years, and frankly, the decade before. While we don’t expect this to contribute meaningfully to our 2025 revenues, we are very excited about the significant savings the U.S. Government taxpayers can reap from buying our parts, just as so many commercial airlines do around the world. For competitive reasons, I can’t get into further detail on these efforts, but I can say that serious work is going into making this happen. Our missile defense components business is experiencing significant growth as well, driven by increasing demand from the U.S. and its allies. With a substantial backlog of defense missile orders and ongoing shortages, we anticipate meaningful expansion from this firm pipeline, reinforcing our commitment to delivering cost-effective solutions without compromising quality. The Flight Support Group’s operating income increased 22% to a record $166.1 million in the first quarter of fiscal 2025, up from $136.1 million in the first quarter of fiscal 2024. The operating income increase principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin. The improved gross profit margin principally reflects the previously mentioned higher aftermarket replacement parts net sales. The Flight Support Group’s operating margin increased to 23.3% in the first quarter of fiscal 2025, up from 22% in the first quarter of fiscal 2024. The increased operating margin principally reflects the previously mentioned lower SG&A expenses as a percentage of net sales and improved gross profit margin mainly reflecting efficiencies realized from the previously mentioned net sales growth. Acquisition-related intangible amortization expense consumed approximately 270 basis points of our operating margin in the first quarter of fiscal 2025. The FSG’s cash margin before amortization, or what we refer to as EBITDA, was approximately 26%, which has been consistently excellent and is 120 basis points higher than the comparable Flight Support Group cash margin of 24.8% in the first quarter of fiscal 2024. I am very happy with the continued expansion of our cash margin and believe our efficient decentralized operating structure has permitted us to expand these margins as we simultaneously delight our customers with fair prices coupled with undisputed industry-leading quality in turnaround times. This is an incredible accomplishment, which is truly unique in our industry. Now, I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO’s Electronic Technologies Group, to discuss the first quarter results of the Electronic Technologies Group.

Thank you, Eric. The Electronic Technologies Group’s net sales increased 16% to $330.3 million in the first quarter of fiscal 2025, up from $285.9 million in the first quarter of fiscal 2024. The net sales increase reflects strong 11% organic net sales growth and the impact from our fiscal 2024 and 2025 acquisitions. The organic net sales growth mainly reflects increased deliveries of our defense, space and aerospace products. Further, orders remain very strong, with the ETG’s backlog reaching the highest ever quarter-end amount on order. Our non-aerospace and defense markets witnessed sequential order improvement in the first quarter, which we believe bodes well for a sales recovery in those markets later this year as customers continue working off their excess inventory. The Electronic Technologies Group’s operating income increased 38% to $76.5 million in the first quarter of fiscal 2025, up from $55.3 million in the first quarter of fiscal 2024. The operating income increase principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin. The improved gross profit margin principally reflects the previously mentioned favorable mix of increased space, defense and aerospace products net sales. The Electronic Technologies Group’s operating margin improved to 23.1% in the first quarter of fiscal 2025, up from 19.3% in the first quarter of fiscal 2024. The improved operating margin principally reflects lower SG&A expenses as a percentage of net sales, mainly due to the previously mentioned efficiencies and the improved gross profit margin due to the favorable product mix. Importantly, before acquisition-related intangibles amortization expense, our operating margin was above 27.2%, as intangibles amortization consumed around 410 basis points of our operating margin. This, as you will recall, is how we judge our businesses, as it most closely correlates to cash. On a true operating basis, these are excellent cash margins and we are very pleased with them. I turn the call back over to Larry Mendelson.

Thank you, Victor. As for the outlook, we look ahead to the remainder of fiscal 2025 and continue to anticipate net sales growth in both the FSG and ETG divisions, primarily driven by strong organic growth, supported by increased demand for most of our products. In addition, we plan to accelerate growth through our recently completed acquisitions, while positioning ourselves to capitalize on our cost-saving solutions for customers. Our priorities remain focused on providing excellent career opportunities for our team members, while advancing new products and services, development, expanding market penetration, and maintaining our fiscal strength and flexibility, all with a commitment to delivering long-term value to our shareholders. We believe the future is extremely bright for HEICO and when we study the numbers in the first quarter and see the large gains in both margins and cash flow, we know that the balance of 2025 is going to be very strong. And we feel that we have a tremendous opportunity to grow HEICO larger than what it is today and we will continue to do so. I offer the opportunity for any of you to call or if you have some questions or comments now, but if your comments are not taken today, please call Carlos or me or Eric or Victor, and we will be happy to give you the outlook. Keep in mind that ETG has the largest backlog in its history. Thank you very much and we now open the floor for questions. Samara, you can open the floor for questions.

Thank you. Our first question comes from Larry Solow with CJS Securities.

Good morning. This is Pete Lucas standing in for Larry today. You covered a lot of ground, and I appreciate it. Starting with the Flight Support Group, I'm impressed by the mid-teen sales growth following last year's mid-20s in the same quarter. You mentioned that the growth drivers are primarily organic demand for aftermarket repair services. Could you provide a bit more detail on whether this is mainly due to increased penetration with existing customers or if it's more about expanding with new customers? How should we interpret this?

Hi. This is Eric. I’d be happy to answer the question. So, I think that most of the growth is coming from expansion with existing customers. We pretty much sell to everybody in the industry, so it’s just deeper market penetration. You pointed out that the 13% organic growth was on top of about 12% organic growth last year. So, that really is, I think, an outstanding accomplishment and speaks to the increased market penetration and the fact that we’re hanging on to this market. We’re continuing to grow. Our customers want additional cost savings, products and services, and it’s really taking hold very well.

And then just lastly, looking at the margins, 23% operating margins in the quarter. I guess, again, driven by higher aftermarket sales. But how should we think about that going forward? With sales expected to grow sequentially, what keeps margins, what looks to be kind of flat for the rest of the year? Is that…

Yeah. You know…

...a question of mix?

It’s interesting that you bring that up. We receive budgets and updated forecasts from all our subsidiaries. One of our investors mentioned that in the last call, I remarked that while our team is exceptional, they also tend to be overly cautious. They submit their figures and budgets, and I don’t view this as sandbagging; I see it as a realistic assessment of what they believe they can achieve, which tends to be slightly conservative. However, the actual demand often exceeds their expectations, and our team rises to the occasion, successfully developing and selling our products, which leads to better performance. While I’m pleased with our approximately 26% EBITDA margin in the first quarter, I prefer not to predict anything higher at this time. If we look at the trend, our EBITDA has increased from around 18% to 26% over the last roughly 10 years. We’ve gradually improved this metric, thanks to a long-standing team that knows, trusts, and respects one another. This collaboration enables them to take risks confidently, leading to strong results and ensuring everyone fulfills their responsibilities. Thus, while we aren’t forecasting an increase in margins, we recognize the upward trend and our team’s dedication to making that happen.

Extremely helpful. Thanks. I’ll jump back in the queue.

Thank you.

And our next question comes from Sheila Kahyaoglu with Jefferies.

Good morning, guys, and great quarter. So, I guess, my first question, just a little bit of fun here, margins are 23% in both segments for the first time. So, how do we think about the expansion from there? Eric, Victor, you both mentioned EBITDA margins well above that in the 27% range. So, how do we think about margin expansion for both segments from here and longer term, but near-term, how price contributed to each segment?

Hi, Sheila. This is Victor. For the Electronic Technologies Group, I feel comfortable with the EBITDA range being between 26% and 28%. I'm hoping for 28% or even higher, and the goal is to improve. However, I'd prefer everyone to feel secure at this level. If we achieve better results, which we are definitely striving for and hoping to reach, we will present that information at that time. Eric will provide details on supply support.

Sheila, I mean, it’s a great question with regard to the margins. And we never forecasted, we never predicted that the margins would end up being where they are. Our style at HEICO, as you know, for following us and getting to know us over the last decade or two, has been just to keep our heads down, work very hard, execute on the details. Everything is in the details. And making sure that we minimize the obsolete inventory, that we make sure technically the parts are where they need to be. We understand the pricing, what makes our customers happy. And when you look at, Flight Support Group is not an OEM. We don’t have typically proprietary products where we are the only authorized supplier. We go to sleep every night knowing that the vast majority, 90% plus of our product line is also offered by somebody else. And yet, we’re able to turn out this 26% EBITDA, which we think is the most important margin because depreciation and CapEx, are roughly equivalent. And if you’re going to be in business long-term, EBITDA is the correct way to look at it. But even on an EBITDA basis, because that’s what our peers do, we’re 27%. So, to be an independent business doing 27% EBITDA margins, I think is frankly phenomenal, and honestly, I never thought that we would get here. So, having said that, our people are working really hard in order to continue to improve efficiency. This is not done through pricing. This is done through watching our costs, increasing our product line, absorbing more fixed overhead. So, I think, look, we’re going to work very hard to make those margins continue to trend up. But when you talk about 27% margins for a competitive aerospace business, I think it shows the, if you will, the uniqueness of the franchise and the fact that, you know, most others in the space don’t, in the independent space, don’t operate at those types of margins. So, I’m nervous to predict that they’re going to go higher, but I would say I’m optimistic and hopeful that they will.

Sure. Maybe, Eric, if I could ask one on PMA, since we didn’t get to chat about this. I know you don’t want to talk about defense PMA opportunities, but overall PMA adoption has become a hot topic, as MRO facilities are pretty tight. What are you thinking about penetration into the market, adoption and any new product opportunities that you’re seeing and thinking about in 2025s?

We are continuing to expand our product line and develop more parts. We are very excited about the acquisitions we've made in flight support during the first quarter, particularly the Honeywell AIMS and VIA product lines, which serve as the avionics systems for the 777 and the 737NG. These also include the new manufacturing for the E-7 and P-8s that are being delivered. I'm very pleased with the expansion of our capabilities. We already had a substantial avionics business, but this acquisition represents a significant step into critical technology, which complements the display units we acquired over a year ago. Additionally, I’m thrilled about our acquisition of Millennium International, the leading independent bizjet avionics repair facility in the world. Customer feedback indicates there’s no comparison to Millennium, even against HEICO. We are delighted to have them as part of the HEICO family, enabling us to offer customers PMA and DER options or OEM, depending on their preferences. This reflects our commitment to broadening our capabilities and there's substantial potential for us in the bizjet market, where we are actively focused. Ten years ago, it would have been hard to imagine HEICO managing the aircraft information systems for the 737 and 777. Coupled with our 20,000 PMAs and nearly 10,000 DERs, we have a wide-ranging offering that continues to grow incrementally each quarter.

Great. Thank you.

Thanks.

And our next question comes from Noah Poponak with Goldman Sachs.

Hey, good morning, everyone. How are we doing?

Good morning.

Good morning.

Thanks for the time. I wanted to follow up on the pricing question because a few quarters ago, we had talked on here about, it’s not the number one weapon in your arsenal necessarily for expanding profitability and creating value, but it is an industry with pricing power. And then some of your peers and companies in the OEM parts have had price increases well above the historical average recently in the inflationary window we’ve been in. And so you had the strategic decision of, do you just keep taking even more market share, especially VIA PMA, which has attractive pricing or do you close that price gap or do you do half and half? And you had talked about maybe leaning more into price than you had in the past just because that gap had opened. And so I was curious where you stood on that, how much of that was in the margin of this quarter. I think it’s a really interesting question. Thank you.

That's a great question, Noah, and we recognize that we have left significant revenue on the table. Our philosophy has always been to cover our cost increases. We exist because our customers expect reasonable prices along with the quickest turnaround times and the highest quality, which is exactly what we have achieved. So the straightforward answer is that we have not maximized our prices to achieve these numbers. In fact, our pricing could be considerably higher, but we choose not to raise them that much. Our price increases have generally been in the low-single digits, possibly on the higher end of that range, but they are sufficient to cover our costs. For some contracted customers, there might be more considerable price increases due to fixed pricing over a longer period. However, looking at it on an annualized basis, the increases remain low-single digits to the higher end of that range. Therefore, we have not pressured pricing. We strive to be fair. While I know Wall Street focuses on organic growth and would like to see the revenue organic growth rate, which at 13% is impressive, I pay more attention to the 22% growth in operating income. At HEICO, we emphasize earnings over revenue. A 22% increase in operating income, with about 80% or 90% of that being organic, is significant for us, and we achieve this without inappropriately raising prices. We have established a very balanced approach, which is why we still have considerable potential and why many choose to partner with HEICO.

Okay, great. I appreciate that, Eric. I have a question about ETG, specifically the defense and aerospace segment, which grew 11% in the quarter. It has been somewhat volatile and seems to be a point of concern for many. Can you discuss what you’re observing in that area and how you anticipate it will perform for the remainder of the year?

Carlos, do you want to?

I could take a stab at that. So, no, we had tremendous growth in defense space and aerospace in Q1 and it doesn’t feel to me like that that’s going to subside. Now, I would caution you that ETG’s characteristics are very lumpy. We have big quarters and down quarters. And I think for the, broadly speaking, for the year, I see a continuation of growth in defense and aerospace. Space, I see being very lumpy. It was good this quarter. Next quarter, based on shipments, it could be down, it could be up, we don’t know yet. And we still have what I would consider a little bit of a tailwind that’s coming back in the other electronics area, which for the first quarter was pretty flattish, maybe just a tick down and so we haven’t seen the big recovery yet that we talked about in December. But I do expect, as we get into our second quarter here, that we should see some life in it. That’ll be more tailwind. So, I have some good expectations for the ETG this year.

Yes, this is Victor. In the non-A&D markets, we're observing orders trending positively. It's not a significant surge, but there is definitely a movement in the right direction. As I mentioned earlier, there's a slight improvement sequentially this quarter, which is encouraging. However, as Carlos noted, we should still anticipate some volatility. This has been our historical pattern for many years. Sometimes we break out of this pattern, and people assume we are at a turning point, but we prefer to assess the overall average over the year.

Okay. Great. Thanks so much.

Thank you.

Thanks, Noah.

And our next question comes from Scott Mikus with Melius Research.

Good morning.

Good morning.

Good morning.

Larry, Victor, Eric, Carlos, quick question on leverage. You ended with leverage at 2.1x, but you still deployed $255 million of capital for acquisitions in the quarter. Given how big the overall enterprise is and the amount of cash you’re generating, is there any fundamental shift in how much leverage you want to operate the business with on a go-forward basis?

The answer is no. We are generally, the maximum leverage we use is 3 times EBITDA and we promised the street that we would drop it to 2 times within one year, which we did. We like it at 2 times. But if we see a very desirable acquisition, we can go to 3 times because we have such strong cash flow. I mean, our cash flow permits us to go from 3 times or 3.5 times back to 2 times within, say, 12 months, 14 months. So we want to take advantage of our ability to make an acquisition using cash because people like cash. And if we get a good opportunity, we will reach and we’re very careful. We want to make sure that that opportunity will create strong cash flow itself. Number two, that it will increase the earnings per share, and that it will be a strong business. And so far, we have accomplished those objectives. So I think that we’ve used our capital in a very, very careful way and you’ve seen the results. When we made an acquisition of Wencor, people said, oh, my God, you stretched it 3 times or so, and look at the results. So I think you’re going to see more of the same. The one thing that I think HEICO is really good at is managing its capital and we have shown that over the last 30 years. And I believe that we’ll continue exactly the same.

Okay. And then switching over to supply chain, a lot of your peers have talked about seeing meaningful improvement in their supply chain. So I was wondering if you could provide color on how the suppliers are performing at both FSG and ETG? And then are there any sort of metrics you can provide, whether it’s on-time delivery or parts conforming to quality that come in from your suppliers?

Yeah. So look, this is Victor. I’ll start with it. The supply chain issues we had experienced a while ago have really improved and we’ve talked about that on some prior calls. And I would call it more or less noise level now across the ETG. There’s some businesses that are particularly affected still and others that are not. But to me, it feels fairly normal in that regard. I don’t have any specific metrics on that company-wide. I can say that our past dues, if you will, our past due and our backlog has dropped dramatically. I don’t think it was terrible. I think, though, at one point, as I recall, a couple of years ago, we felt it was about $50 million or so in total, where we had things shifting out to the right. But it’s dramatically less than that now and I’d call it more in the normal range. And Eric, I don’t know if you have a take for our Flight Support business.

In general, things are improving slightly. Some areas are showing progress while others are facing challenges. I can say our sales could have been significantly higher if all our suppliers had been able to deliver. Our suppliers have faced major labor issues, but I believe those are starting to be resolved. We do monitor on-time metrics across various metrics such as dollars, orders, and quantity in all our businesses, although I am not ready to share specific details at this time since we operate a decentralized business and do not have a consolidated report. However, we do review performance in each of the businesses. So, while things are getting better, they are not yet at an ideal level. Additionally, the recent problem with SPS due to the unfortunate fire they experienced will likely further restrict the industry, which could affect many participants in the market.

Thanks for taking the questions.

Thank you.

Thank you.

And our next question comes from Jan Engelbrecht with Baird.

Good morning, Larry, Eric, Victor and Carlos. I’m on for Peter Arment this morning. Thanks for taking some of the questions and congrats on a really strong quarter. Victor, maybe a question for you on DOGE and just defense, just given the constant news flow we’re seeing tied to DOGE and they’re currently reviewing Pentagon contracts. Could you just provide your updated view on HEICO’s positioning within defense markets and your opportunity to win meaningful content, just given the value-based approach that you follow? And obviously this aligns really well with the current administration’s goals and is there any particular areas maybe within sort of supporting legacy or airborne fleets or defense electronics with radar missile defense platforms that you see as a really strong area to target?

I believe there is a significant opportunity for us. It's important to note that we anticipate both winners and losers in this environment, but the outcome is still uncertain. We can't state with absolute confidence what our experience will be. Our focus has consistently been on providing cost-saving solutions to customers, offering lower-cost alternatives to their options. This approach remains unchanged. We are particularly excited about certain missile defense programs where we have substantial involvement, as well as some innovative space-based programs where we can provide excellent solutions. We also continue to focus on the fundamental aspects of our business. As Eric mentioned regarding our PMA parts business, we have always refrained from pushing pricing as part of our strategy to deliver great value to customers, ensuring they don't seek alternatives. This advantage is beneficial to us, especially in current circumstances. Regarding the Flight Support Group, Eric may want to elaborate, but I believe there is significant potential for revenue growth, particularly looking ahead at commercial parts that are equivalent for military use.

Yeah. Victor, I agree with everything that you said. I think there are going to be very good opportunities within the defense department. For competitive reasons, we never get into specific customers nor products, but obviously the spend is tremendous. And we all know that there’s tremendous areas for improvement. Everybody acknowledges that. And I really need to, if you will, congratulate the administration on this focus because everybody has known this for a long time and frankly, not much or anything has been done about it. And even everybody in the industry and all of the AIA members agree that there’s tremendous opportunity for efficiency gains in terms of process, cost, alternatives. So I think HEICO is going to be very well positioned. You’re familiar with our product line, whether it’s parts, repairs, distribution, defense sustainment, specialty manufacturing. I think we are going to be in the sweet spot here. And that’s what HEICO has been built to do, to deliver those types of savings. So I’m quite optimistic. But again, this is not going to be a fiscal 2025 story. Maybe there’ll be a little bit of revenue in fiscal 2026, but a lot has to be done and that’ll take a little bit of time, but I think at least we’re on our way.

Perfect. Thanks, Eric and Victor. That’s really helpful. And just a quick follow-up, just perhaps, Eric, back to your call is just some high-level thoughts on commercial aerospace, global travels and record levels, but the OEM build rates are directionally moving higher, specifically at Boeing in 2025. If you just talk about for FSG, just the impact, if any, on medium-term margins, call it the next one to three years as the industry makes shifts towards aftermarket, towards more of a OEM mix.

Yes, this has been discussed for a couple of years. Boeing, in particular, has faced challenges, while Airbus has been delivering many new aircraft. As we see the fleet expanding and people's travel desires increasing due to rising global incomes, I spent the first three days of this week reviewing our sales with our leaders across various businesses, and I can confirm there is no sign of a slowdown. I believe performance will remain strong, and I’m not too concerned. If there are declines in the future, we can adapt. Over the last 35 years, we've navigated many cycles in this industry. When you consider the aging fleet with around 20,000 to 27,000 aircraft getting older each year, while some older models may be retired, most will still require significant parts at higher prices, and HEICO is well prepared for that. We can provide OEM materials, and we have alternative options available as well. For OEMs looking to develop alternatives and grow their business, partners like Seal Dynamics and Wencor excel remarkably in increasing their clients' business. Once they are locked into a program, access to it is restricted, but with Seal Dynamics and Wencor's connections to all the airlines and their collaboration with HEICO, we can leverage numerous PMA and repair opportunities to support growth. We deliver products and services unparalleled in the industry. Thus, I am very optimistic that despite Boeing delivering more aircraft, HEICO is well-equipped with talented personnel.

Great. Thanks for taking my question.

Thank you.

Our next question comes from Tony Bancroft with Gabelli Funds.

Thank you so much, gentlemen. Very well done, as always. Any update? Just interested in the previous acquisition you made a little while ago on Honeywell. And I apologize, I got on late on another call. But on Honeywell’s avionics businesses that you guys did, any update with that? Is there any more, anything out there that you’re interested in? Do you still like that area? Maybe just what your appetite is there?

Thank you for the question, Tony. Honeywell is an outstanding company that produces remarkable products, and we are very pleased to have a partnership with them. Over the past 18 months, we have acquired three product lines from Honeywell, and this has proven to be extremely beneficial. They have effectively utilized their limited resources by focusing on higher value activities, and HEICO has been an excellent partner in these acquisitions. We execute our plans very well, possess extensive product knowledge, and are well-regarded by our customers. In addition to Honeywell, we have successfully purchased product lines from various other manufacturers, including Northrop and Triumph, employing a reliable and proven process for integration while ensuring customer satisfaction. I am thrilled with the product lines we've acquired, including the display units and the aircraft information management system, as well as the Emergency Locator Transmitters for commercial aircraft. There continues to be strong potential in this area as we are recognized as a trustworthy partner.

Thank you for that. I’d like to discuss Berkshire's acquisition of your shares. It's quite evident, but I'd appreciate your insights on why you believe they decided to invest in your company. This marks a new position for them. Is there a chance they might consider buying your entire company? You have performed exceptionally well, and it aligns with their values. I’d like to hear your thoughts on this.

Yes. So, I mean, we’re obviously overjoyed that Berkshire has become an investor in HEICO and we think that definitely, as you point out, our cultures align. There’s a lot of similarities in the business. We didn’t, if you will, set out to sort of copy Berkshire’s culture. We just set out on this path 35 years ago and it was a small $25 million company to do what made sense. And what we saw was that by operating this decentralized model with incredible operators, you’re able to produce phenomenal results. And Warren Buffett is the father and the genius behind, originally behind that whole strategy and he does it, obviously, on a significantly larger scale than we do it. So, we’re very happy. As far as your comment about Berkshire wanting to or possibly buying HEICO, HEICO’s not interested in selling the business. We’re very happy with the continued growth. Berkshire is really, has been absolutely phenomenal, a great shareholder. And frankly, we can learn a lot from them. So, I think Warren Buffett’s got an incredible team and it’s a very deep organization and we will continue to, I think, grow our relationship with them.

Great job, gentlemen. Awesome to get on the wall of fame there. Well done.

Thank you.

And our next question comes from Scott Deuschle with Deutsche Bank.

Hey. Good morning and great results.

Thank you. Good morning.

Good morning.

Eric, I know fasteners aren’t really an aftermarket part, but specialty products does do a good amount of commercial OE work. And this is maybe a naive question, but I was curious if specialty products have any capabilities in the fastener space? And if not, is that a business you could ever see the company getting into, particularly given the recent events at PCC?

PCC operates an exceptional business with their castings, forgings, and fasteners. It would be unwise for HEICO to try to compete with them. They are deeply entrenched in their market and are very skilled at what they do. While there may be some minor opportunities, I don’t see us wanting to enter the same space as PCC. The fire incident is unfortunate, but it's a well-managed company. I believe they will quickly find ways to resource and produce their products elsewhere, and their facility is already operational. I am confident that they will recover from this issue faster than others typically would.

Okay. And then, Eric, do you think the PMA parts are fully penetrated and auxiliary power units at this point relative to where it can go or is there still meaningful opportunity there? And I’m focused less in terms of customer adoption and more in terms of whether you think the business has PMA’d all the SKUs that you think represent the opportunity on APUs or if you think there’s still more SKUs that the company can go after?

I don't really comment on specific products as a matter of policy. Honeywell is quite effective with their auxiliary power units and holds a significant market share. This area has not historically been a major focus for HEICO. While I can provide details, I prefer not to comment to maintain consistency with our approach to other products. However, it has not comprised a large part of our business.

Okay. Thank you.

Thank you.

And our next question comes from David Strauss with Barclays.

Hi. Good morning. This is Josh Korn on for David. So I wanted to ask you, you’ve done about $400 million in acquisitions over the last two quarters. Could you give us an idea of how much those deals add in annualized revenue? Thanks.

Yeah. This is Carlos. The deals we’ve completed haven't been individually significant, so we prefer not to discuss the financial aspects of each deal in order to maintain consistency with our public filings.

Okay. And then to follow-up, I think, on an earlier question, could you talk about how you see the sustainability of each of the 15% organic parts growth and then the 11% organic MRO growth in the quarter? Thanks.

I’m very pleased with our growth. Clearly, we are increasing our market share and performing well. I’ve been hesitant to make specific predictions. Our primary focus, as I mentioned earlier, is on earnings growth because, ultimately, revenue doesn't hold much value. What truly matters is our earnings, as that’s the capital we can reinvest to expand our inventories and operations. In the Flight Support Group, we’ve achieved a 22% increase in operating income, mainly from organic growth. I believe we have the right talent and industry fundamentals to sustain this momentum, but we refrain from providing guidance because we can’t predict exact outcomes. Most of our orders come in during the month of shipment, making it hard to make forecasts. I think people recognize HEICO's performance and expect us to be at the forefront regardless of industry conditions, and we have a proven track record over the last 35 years. I am confident that we are supported by strong trends, and while we do not anticipate a slowdown, making precise predictions is complex for us as we rely heavily on quantitative analysis and data.

Okay. Great. Thank you.

Thank you.

And our next question comes from Joel Santos with UBS.

Hi, this is Joel Santos representing Gavin Parsons from UBS. Thank you for addressing my question. I understand you've discussed pricing extensively, but could you let us know what portion of your portfolio is under long-term agreements compared to what can be repriced annually?

We can reprice, I would say, if it’s not annually within the next couple of years. But there’s a split there in terms of the long-term agreements and the repricing annually. I don’t have in front of me what that is. And again, because it’s decentralized, I’d have to pull all that together from all of the operating subsidiaries. But my guess is it’s in roughly the 50-50 category, something like that.

Great. And in terms of aftermarket, how should we think about the pricing power in the segment, given the current supply chain and competitive dynamics?

We believe we are missing out on significant revenue opportunities while keeping our customers satisfied. Our company started out small, and we've maintained the philosophy of treating people well to secure business for 35 years. However, we have to account for our rising costs and cannot absorb these increases without passing them on to our customers. It's essential for us to address the necessary adjustments, even when customers have fixed pricing for a period. While we reassure our customers that we don't exploit them with pricing, we only aim for a small market share across our products. Consequently, we see a lot of potential for pricing increases, although we haven't fully leveraged that yet.

Perfect. Thank you very much and congrats on the quarter.

Thank you very much.

And our next question comes from Ron Epstein with Bank of America.

Hey, guys. Good morning.

Good morning, Ron.

Good morning.

So just a minute, a couple quick questions, maybe following up on your commentary, Eric, about the fleet and the age of the 22,000 airplanes that each get a year older. Do you guys have an internal kind of guesstimate on when the average age of the fleet will actually start to come down, because it seems like to me that that might not happen until like the early 2030s. But I don’t know if you guys agree with that or how you think about that?

Yeah. We probably wouldn’t look at the average. So for us, what we would look at is the number of aircraft in each of the age cohorts. So we think that continues to increase. So as you get the new aircraft delivered, you’re still going to be flying the older aircraft, and I think, especially in times where you’ve got higher interest rates, that makes newer aircraft less attractive. But we think also if you look at the newer generation aircraft, they’re very, very expensive to maintain. I mean, these aircraft are insane to maintain. So the cost per equivalent unit. So we think that the tide is rising and our market share is so relatively small that we can also grow our market share. And then, frankly, compound it with the acquisition. So you put all that together and the fact that they’ll deliver more new aircraft doesn’t concern me.

Got it. Got it. Got it. Yeah. I mean, it does seem like there’s a really long runway there and sometimes I just want to make sure we’re thinking about it right. And then another one, to follow up on a question or a comment that you made around the fleet and the age of the 22,000 airplanes that each get a year older. Do you guys have an internal kind of guesstimate on when the average age of the fleet will actually start to come down, because it seems like to me that that might not happen until like the early 2030s. But I don’t know if you guys agree with that or how you think about that?

Yep, good. Thanks.

Okay. Thank you very much, guys.

Thank you.

And at this time, I will turn the conference back to Laurans Mendelson for any additional or closing remarks.

Thank you very much to everybody on this call. We appreciate your interest and we are available for any kind of conference that you may want to have in the future. So thank you and we will speak to you in the next second quarter. Thank you and this ends the conference.

And this concludes today’s call. Thank you for your participation. You may now disconnect.