HEICO Corp Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Peter Lukas - CJS Securities - Analyst : Peter Lukas for Larry this morning. You guys covered a lot, and I do appreciate that. I guess just starting with Flight Support Group, very impressive mid-teens sales growth on top of mid-20s in the quarter -- first quarter last year. You talked about the growth drivers being organic demand for aftermarket repair services. I guess maybe if you could just give us a little more color. Is that penetration of existing customers or expansion with newer customers? How should we think about that? Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group 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.

Question: Sheila Kahyaoglu - Jefferies - Analyst : 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 just how do we think about margin expansion for both segments from here and longer term, but near term, how price contributed to each segment? Victor Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Electronic Technologies Group Sheila, this is Victor. For the Electronic Technologies Group, as you probably heard me say, I feel comfortable with that EBITA range in the 26% to 28% range. And hopefully, 28% -- hopefully higher and the goal is higher. But I'd rather everybody be comfortable at this level. And if we do better, which we're certainly working to do and hoping to do, we'll deliver on that at that time. And Eric will answer on support. Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group So, 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 -- 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 of 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 authorizer. 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 margin, 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 most others in the space don't -- in the independent space, don't operate at those type of margins. So I'm nervous to predict that they're going to go higher, but I would say I'm optimistic that -- and hopeful that they will.

Question: Noah Poponak - Goldman Sachs - Analyst : 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 1 weapon in your arsenal necessarily for expanding profitability and creating value, but it is an industry with pricing power. And then your -- 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 close -- 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. Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group Yeah. It's a great question, Noah. And we clearly have left a lot of money on the table. We -- our philosophy always has been that we've got to cover our cost increases. And we exist because our customers need reasonable prices, coupled with the shortest turn times and the highest quality. And that's really what we've done. So the answer is no. We have not squeezed the orange in order to deliver these numbers. We could -- frankly, I think our prices could be a lot higher, but we don't do that. And our prices have been, as you know, sort of the increases have been sort of low single digits, maybe the high end of low single digits, but really sufficient in order to cover our cost increases. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 2:00PM, HEI.N - Q1 2025 HEICO Corp Earnings Call We do have certain contracted customers where as a result of fixed prices for a longer period of time, there could be more substantial price increases. But if you look at it on an annualized basis, it's still that, I would say, low single digits up to the high end of the low single digits. So we have not -- no, we've not pushed the pricing. We want to make sure that we're very fair. And I think when you look at the -- I know Wall Street looks at organic growth. They want to see the revenue organic growth rate, and that seems to be the metric and 13% is great. But what I really look at is the 22% on the operating income side because that's what all of -- none of our people -- we don't talk revenue at HEICO. We talk earnings. And when you look at 22% operating income increase, of which, let's just say, 90% of that is -- or 80% of that is organic, that's huge. And we do that without jacking prices inappropriately. So I think we have a good -- a very, very good balance. And that's why we have, if you will, a lot of gas in the tank and why people want to work with HEICO.

Question: Scott Mikus - Melius Research - Analyst : Larry, Victor, Eric, Carlos, a quick question on leverage. You ended with leverage at 2.1x, but you still deploy $155 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?

Question: Scott Mikus - Melius Research - Analyst : Okay. And then switching over 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 with delivery or parts conforming to quality that are coming from your suppliers? Victor Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Electronic Technologies Group 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 EPG. There are some businesses that are particularly affect 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, the hour past due in 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 Flight Support business. Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group Yeah. I would say, in general, things are getting a little bit better. There are some areas getting better. There are other areas getting worse. I can tell you that our sales could have been nicely higher if all of our suppliers were able to deliver. There's been just a massive -- our suppliers have a significant issue with regard to labor. I think that, that's getting settled out now. The answer is yeah. We do look at the on-time metrics by dollars, by orders, by quantity in all of the businesses. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 2:00PM, HEI.N - Q1 2025 HEICO Corp Earnings Call So we do study it. I'm not prepared to share the details right now, especially since we operate a decentralized business, and I don't have a, if you will, a consolidated report, which pulls all that together, but we do review it at each of the businesses. So I would say getting better, but not great. And then, of course, this most recent issue with SPS and the unfortunate fire that they had is obviously going to further constrain the industry. And what we'll have to see, I think that's going to impact a lot of participants in the industry.

Question: Jan Engelbrecht - Baird - Analyst : Eric, Victor and Carlos, I'm on for Peter Arment this morning. Congrats on a really strong quarter. Victor, maybe a question for you on and just defense. Just given the constant news flow, we're seeing tied to 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 area maybe within sort of supporting, I guess, airborne fleets or defense electronics with radar and Marcelle defense platforms that you see as a really strong area to target? Victor Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Electronic Technologies Group So I think there's some very nice opportunity for us in there. And to be clear, I believe -- we believe there'll be winners and losers in this hasn't shaken out yet as to what we'll win and what we'll lose. So we can't say with certainty what we'll experience. But as you pointed out, our focus has always been on cost saving solutions for the customers where we provide seller cost alternative than to what they could do otherwise. And so that continues to be the case. I think the things that we're excited about particular are some of the missile defense programs. We have some very good content on those. Some of the newer space-based programs where I think we can operate solutions there in the ETG as well as that basic blocking and tackling that I talked about. And again, we've always, as Eric mentioned, with our PMA parts business, we've never pushed on the pricing lever. That has been our strategy and approach on long to deliver great value to the customers. So they're not looking to go somewhere else or figure out how to go somewhere else. So I think it definitely endures to our benefit all the time, but especially at a moment like this. For the Flight Support Group, Eric may want to address that, but I do think there's some very nice revenue upside for us, not necessarily this year, but as we get a little further out on commercial parts equivalent parts for military use. Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group Yeah. Victor, I agree with everything that you said. I think that 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 that 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 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 2:00PM, HEI.N - Q1 2025 HEICO Corp Earnings Call So I think HEICO is going to be very well positioned. You're familiar with our product line, whether it's parts, repairs, distribution and defense sustainment to 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 '25 story. Maybe there'll be a little bit of revenue in fiscal '26, but a lot has to be done. And that will take a little bit of time. But I think at least we're on our way.

Question: Tony Bancroft - Gabelli Funds - Analyst : 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 into the call. But on Honeywell's avionics businesses that you guys did. Any update with that? Are there any more -- anything out there that you're interested in? Do you still like that area? Maybe just what your appetite is there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 2:00PM, HEI.N - Q1 2025 HEICO Corp Earnings Call Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group Yeah. We -- Tony, great question. Honeywell is a phenomenal company. They put out incredible products, and we're very happy to be partnered with them. And now we have purchased three product lines from them in the last 18 months, and I think it's worked out extraordinarily well. Because they are able to take their limited floor space in their limited number of members and allocate them to higher-value activities. And HEICO is a great partner when it comes to buying these product lines. We execute extremely well. We're very knowledgeable about the products, and we are very well liked by the customers. So I think not all but all many different manufacturers out there, we've now purchased product lines from. And we have really a very successful time-tested process where we're able to buy, whether it's Northrop or Triumph or Honeywell or others that we don't even talk about, we've been able to buy product lines, get this integrated, make sure that the customers are happy, and it works out very well. So I'm overjoyed with the product lines that we bought in terms of the display units and the aircraft information management system for the -- and the ELT, the emergency locator transmitters for commercial aircraft. And I think that there continues to be very good opportunity because we're known as a very reliable partner.

Question: Scott Deuschle - Deutsche Bank - Analyst : 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 has 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? Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group Yeah. I -- look, PCC, they operate a phenomenal business, whether you look at their castings, their forgings, their fasteners. I think for HEICO to get into business trying to compete with PCC would be foolish. They have got it so ground in and they know exactly what they're doing and they're phenomenal. So look, there could be little opportunity here and there, but no, in the mainstream. I don't see us ever wanting to get into -- to try to do what PCC, what they do. The whole fire thing is a very unfortunate thing, but that's an incredibly well-run company and knowing PCC and the way that we do, I think that they will figure out very quickly how to get those products resourced, built elsewhere, they've got their facility up and running. So I've got a lot of confidence they're going to come back online much quicker than anybody else would with this kind of problem.

Question: Jopo Santos - UBS - Analyst : This is Jopo Santos speaking on behalf of Gavin Parsons from UBS. I know you guys already talked a bit about pricing. But in terms of pricing, are you able to share with us how much of your portfolio is on long-term agreements versus how much you can reprice them annually? Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group We can reprice, I would say, annually within the next couple of years. But this is 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 again because it's centralized to pull all that together from all of the operating subsidiaries. But my guess is in roughly the 50-50 category, something like that.

Question: Ronald Epstein - Bank of America - Analyst : So I mean a couple of quick questions. Maybe following up on your commentary, Eric, about the fleet and the age of the 22,000 airplanes that you get your older. Do you guys have an internal kind of guesstimate on when average age of the fleet will actually start to come down? Because it seems like to me that might not happen until like the early 2030s, but I don't know if you guys agree with that or kind of how you think about that? Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group 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 cohort. 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 are insane to maintain. So the cost per equivalent unit. So we think that the time is right and our market share is still relatively small, that we can also grow our market share. And then frankly, we compounded with the acquisition. So you put all that together and the fact that they'll deliver more new aircraft that concern me.

Question: Ronald Epstein - Bank of America - Analyst : Got it. And then maybe one last one. How are you guys thinking about tariffs given how global supply chains are in commercial aero to, I guess, to a far lesser extent in defense? In commercial aero, it's so global. I mean how do you guys think about it what it could mean ultimately?

Question: Gautam Khanna - TD Cowen - Analyst : I was wondering on DoD PMA. What -- do you have any sense for the development time lines would be to get parts qualified and uses would be much different from what you guys encountered normally with the FAA and the other -- Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group Yeah. I would say that there's going to be really continued work in development in that area. I'm reluctant to get into specifics because we don't want to tell our competitors what we are doing. And therefore, we really don't want to get into the details on what we're -- what our strategy is. But we do think that there is a very significant market. And we'll have to see really how that develops. But again, we don't see that as -- that has not been a revenue contributor to date, and we're not forecasting it in our '25 numbers.

Question: Gautam Khanna - TD Cowen - Analyst : Yeah. I know it's an -- because again, I don't want to discuss it, but I'm more curious about, obviously, you guys sell a lot of defense products to the government. But I was wondering if specifically, are you -- have you been selling defense products? Or are they OEM-branded components, the ATG and specialty products? Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group No, we sell HEICO proprietary parts, yeah, to the DoD. We sell parts that are interchangeable with the original manufacturers parts. Yeah. We have done that, we have a lot of experience doing that. It's relatively small but it's -- there are many examples of it. And yeah, so they're not a strange -- that's what you're getting to.

Question: Gautam Khanna - TD Cowen - Analyst : Got you. Cool. And then Eric, I was curious on when core the aerospace integration, you mentioned a number of the initiatives you guys have already implemented to make sure there's cross-selling. I was curious how well penetrated you think that cross-sell has been? Or do you feel like you're far along in that journey? Or is it early? How much opportunity --? Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group Yeah. I think we've done well. I mean, look, we operate the businesses independently. But clearly, when you put the 2 product lines together, you've got much more compelling savings. So I think we're early in the -- definitely in the first half, I think that there is a lot more opportunity that -- a lot more opportunity out there. I'm very happy with the progress that we've made to date, but I think our sales folks have a lot more potential out there, significant. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 2:00PM, HEI.N - Q1 2025 HEICO Corp Earnings Call

Question: Louis Raffetto - Wolfe Research, LLC - Analyst : Maybe one for you. You said before that you guys offer OE parts if customers want more alternatives. I guess, just to clarify on that, are you selling like a PMA part and an OE part? Or is that more an OE part and a DER repair? Or is that sort of more not on the same product, I guess? Eric Mendelson - HEICO Corp - Co-President and Director; President, Chief Executive Officer of HEICO Flight Support Group So it would typically not be on the same product on the part side. So we represent a number of OEs on the distribution side. And so we sell OE parts. Typically, if we're doing the distribution on something we don't also offer PMA to sometimes we do. Look most of the time, it's just the straight representation of the OE, and we are able for those OEs to develop additional PMAs for them. So I know we were just say out on the 737, but they didn't get on A320 on the particular product they may. So what we can do is go out to the A320 customers and through our PMA network, get those parts -- get those customers to support the development of and commit to purchase those parts. And then we can have the OE fully distributed manufacture those PMA parts. And that's been a very successful part of our strategy. But then also separate from that, I was talking about really referring to the repair business that we're the largest independent component overhaul for, I believe, in the work of non-OEM, non-airline, nongovernment. And although we're a lot bigger than a lot of OEMs provide to government, but it's a very significant component repair business. And there, we do what our customers want. If they want OE parts, and we use OE parts. If they want alternatives, PMA or DER, then we'll use those, it's really customer-driven on what they want. So in that case, we stock both, the HEICO PMA parts as well as the OE parts and they make the decision. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 2:00PM, HEI.N - Q1 2025 HEICO Corp Earnings Call

Question: Louis Raffetto - Wolfe Research, LLC - Analyst : Carlos, just a quick one for you. In the past, you sort of give us how you were thinking about the combined impact of taxes, minority interest expense. I didn't know if you're able to provide that for this year?