HEI - Earnings call transcript Q2 2018

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Operator

Good day. My name is Alicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fiscal Year 2018 Second Quarter Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. in subject call contingencies. to statements statements, constitute Certain are which risks, Instructions] this will conference forward-looking [Operator uncertainties and contracts; actual or as materially by differ commercial lower air which including: governmental and homeland services; results demand regulatory defense, expressed airline for cost decisions, product HEICO’s implied fleet could requirements, which or and/or cause cause goods and changes our in an lower our policies from for to security demand those export purchase result a costs those complete statements, and demands, travel reductions U.S. of and to increase airline specification spending restrictions, by factors or forward-looking may space could foreign synergies which interests, products our introduce customer make or budget could reduce product foreign product space, ability outside to defense-related manufacturing defense cuts, the services telecommunications negatively our or and our to – could could growth; which and reduce defense, from reduce businesses; industries, sales; defense our and on impact economic levels, and/or electronic exchange our within competition revenue. sales which credit and acquired new and customers which new revenues; sales; development ability difficulties, of aviation, acquisitions profitable from development delay at pricing tax existing sales risks; cost could our cost and and medical, operating and our conditions or spending income achieve rates; currency and competitors, which increase and could limited filings Form the including, all XX-Q Form transcript to Securities on of with Form of filings X-K. to this to, a XX-K, not call review Parties Commission listening and but Exchange encouraged or HEICO’s reading and are to future or law. any obligation update required no information, except a as statements, forward-looking result undertake by otherwise, to applicable events of extent new revise the whether or We publicly turn to over like to today’s now conference would I Mr. Laurans Mendelson. your begin may you conference Sir,

Laurans Mendelson

and by attendance appreciate and I’m and Flight and to second on Chairman here And welcome announcement Group; we President HEICO’s quarter the CEO Electronic HEICO’s morning call. earnings Corporation. very fiscal Mendelson. Vice HEICO’s your much, everybody President Macau, Technologies HEICO we and Larry Mendelson, you CFO. XXXX welcome of Thank Executive We Support you I’m I’m of our Co-President this Mendelson, of joined Carlos President and HEICO’s Group; HEICO’s and Eric Victor Co-President teleconference.

and second a and I quarter and within represents the of continued spirit Their sales that has allowed first record producing driven and within in So results, us dedicated, have and company and work work operating for talented, bring nothing, moment who operating enthusiasm a responsible to second be efforts, to proud and quarterly I’d our the and XXXX our executive very by to results we always sales our six culture coupled the driven quarter. as operating would fiscal its of Board strong to and detail, management, the members, have and within hard that the net results. with net income commitments just record executive products, highlights the both culture. one win sales is the net represents HEICO said, they that markets lead. net its income that XXXX of Support these by record contributions income I were day, in Without team second and are HEICO I’ll operating income net every like quarter grow company before they income HEICO’s were record-setting the take makes and thank concerned their months operating great all serve. management best we’re proud ETG. in to as high-quality customers a Consolidated And of Flight reviewing and again income, and I’m all fiscal and of loyal to unique and segments. net industry. entrepreneurial particularly a outstanding our sales, record HEICO’s to far results, they we were take operating operating in Consolidated and summarize minutes sales people in to few of

for I we team that million been or As of net million, all contributing The of income $XXX.X to quarter enjoyed by I in in from positive and health markets Cuts HEICO, honest, XX% $X.XX our per present environment, share XXXX. invest in per XXXX is of was unleashed to or or serve. you $X.XX that $XX.X submit million pro-business the in Consolidated positive Consolidated from the second Tax before, plant has growth profitable fiscal outcome has the income factor it $XX.X Jobs mentioned per U.S. This in end first of of for a A acquisitions. capital of six fiscal XXXX. now months impact outstanding enthusiasm the which to that Americans. the diluted Act is contributed Tax a hardworking pro-business and equipment, net members, the that $XX.X to second country, and Cut increased HEICO improving in diluted $X.XX in fiscal share a and our is And have and the factor six up in or quarter record per XX% fiscal the the $X.XX to the up to share XXXX. increased diluted income net was share months million first diluted XXXX. and

up to XXXX operating the is six improved X months in XXXX. We intend the – of six fiscal quarter Our savings and the XX.X% XXXX. and XX.X% to fiscal of XXXX, months which the and XXXX, months XX.X% XX.X% that first first Consolidated was from of to up in tax quarter fiscal months of effective in the from improved these utilize first XX.X% create grow fiscal to XX.X%, in HEICO second was XXXX, fiscal in of in rate down to from shareholder value. first second tax the additional six of margin fiscal six

second and by respectively, acquisitions our sales improving increases XXXX. the set fiscal XXXX income fiscal quarter These from Group well profitable as Support reflect over XX%, the XXXX of in operating records net impact growth the X%. second and XX% as quarter fiscal Flight quarterly of of organic Our

provided principally net of Group in ETG acquisitions. the quarter the and sales operating XXXX. increased quarter impact reflect XXXX provided over activities increased Cash XXXX operating in income in fiscal months Those operating second fiscal XX% six million up and $XX XXXX first Cash $XX quarter second the million million of Our of XXXX. was and to XX% totaling strong by $XX.X remained XX%, flow the of second in flow quarter of our fiscal the activities the respectively, and from fiscal XXXX, fiscal fiscal of XXXX. increases by that second

our fiscal continue provided cash record activities. by operating XXXX, we full anticipate flow to the For

Our cash XX.X% net debt of XX, of total XX.X% XXXX, debt, and shareholders’ that which October April from and is ratio down of decreased was equivalents cash to XXXX. less to $XXX.X as equity million XX, as

Our X.XX that XX, April X.XX as October of net as to times times ratio to debt XXXX. improved of compared XX, and to EBITDA

and acquisitions past XXXX, completed year. fiscal three acquisitions During have completed over have successfully we five the

Transmitter In acquisitions significant remaining subsidiary, of and Sensor product radiation product Group. business XXXX, In subsidiary, acquired part fiscal signal maximize and Emergency Transmitter all call also of roles. our Santa no rescue founders Engineering existing which flexibility to shareholder plan Infrared Sensor to financial Tech Barbara growth line XXXX, of in assets aircraft’s ETG returns. of Beacons Locator maturities April of the alert upon that and of our Limited. is the utilize research is is line the commercial two manufactures which XX% manufactures and part we law of Instrumar February security nuclear debt to Tech’s Electronic designs, This markets, to Locator pursue operation XXXX, our in accelerate it Beacon Technology we the of and acquisition their to assets our until XX% transmits and Sensor Tech of is for which our distress applications. and we we We designs, high-quality location. enforcement, the Emergency owned Tech. have aggressively aviation Sensor business sophisticated and detectors an Dukane homeland Seacom continue acquired This business a part activation, will Sensor for military Group. of manage Technologies defense

earnings both expect following our We of these to accretive within be to months the XX acquisitions first closing.

of and President Group. I’d to of and time, discuss Group, he of the Support Eric Flight Support this results HEICO’s HEICO at Now Eric? Flight Mendelson, introduce the Co-President like will

Eric Mendelson

new quarter of second six and XXXX. from The Thank within respectively. replacement $XXX.X of growth months X%, of million is you. the product Support demand and parts the in in recent our XX% X% product the fiscal fiscal XXXX quarter The record Flight second parts Group’s first increased in repair fiscal quarter of XXXX, aftermarket increased from to first fiscal The acquisitions, to as in million fiscal the organic the quarter increase Support in second months sales XXXX. and well second principally XXXX Group’s and services fiscal as offerings overhaul of up to net the net profitable impact six record $XXX.X from months in million up $XXX.X Flight XXXX, is a lines. six our and sales million from a of increased The months in and attributable growth organic of first XX% $XXX.X six first

product fiscal in six net sales products specialty offset Additionally, by line. the within of first XXXX our months lower the partially increase was

quarter months months XXXX. to increase product sales previously up attributable an Excluding operating net fiscal X% $XX.X to XXXX first fiscal of growth impact the gross Group’s increase million the million income by XXXX. products and fiscal XXXX, improved six increased record to first Support line, Group six in Flight of in second of income million performance-based $XX.X $XX.X million a mentioned the quarter the in expense. decrease XX% our The The Flight of the organic second up months six XX% an increased the margin, the Flight record fiscal second operating Support first The net first fiscal fiscal mainly months in in a from specialty the profit the XXXX, XXXX. is quarter in in from in six Support of offset sales and experienced of $XX.X growth partially from compensation of Group’s the

fiscal an now months in in Flight Support intangible Support Additionally, improved amortization XXXX, the of to mainly we XXXX six months slightly fiscal introduce Group’s in to Support XXXX. now Flight Group’s estimate in to the fiscal HEICO XX.X% And results gross of we to XX.X%. respect XXXX Group. These compared to was I XX% first the intangible increase operating estimates additional acquired estimate strong operating in up President second HEICO’s in to be the second amortization of XXXX, margin Technologies the prior XX% we margin to growth quarter XX.X% fiscal of fiscal months growth expense, sales full-year prior of resulting the net mid-single of operating the of the principally sales the digits. performance-based approximately The if margin XX.X% estimate of compensation fiscal quarter the The profit of estimate six reflects decrease decreased fiscal in from months of from full-year Technologies Co-President Flight XX% partially Flight previously six expense to would XXXX. of XXXX and of remainder XX.X% to Electronic like as Group offset Group, Electronic a the margin. increases and first by XXXX over Mendelson, businesses, the six first the The the Support first expense, acquisitions. net to asset and Vic continue Further, fiscal from mentioned approximate discuss XX%, With Group’s year mentioned in the reflects exclude rate asset full-year any. previously the the organic

Victor Mendelson

second $XXX.X Electronic Group’s from net sales of The $XXX.X in increased net million of six and in by our XXXX six increased to Technologies in The in the XX% quarter The Group’s the first the fiscal of the six months million thank second XXXX. record fiscal $XXX.X quarter months quarter fiscal contributions XXXX impacted first Technologies months million XXXX, up Eric, sales acquisitions. $XXX.X to of in million a you. second up XX% fiscal of fiscal XXXX from increase the was fiscal and first the favorably of XXXX. Electronic XXXX,

the income Group’s fiscal and in defense favorable certain Additionally, increase to and the by of in months XXXX, margin quarter increased quarter and quarter XX.X% and margin, of mentioned second XX.X% in estimate six XX% anticipate increase offset to reflects to increase operating organic growth XXXX of businesses, first first the Technologies the quarter we Group’s estimate sales intangible Electronic primarily in income Further, XXXX, the and Technologies first months and amortization the reflects and profit quarter six digits. the to our regard approximately in fiscal from second in six fiscal XXXX. fiscal in an mix XXXX. to second mid-single sales Technologies $XX.X XX.X%. the second The Group’s fiscal reflecting and $XX.X months growth organic space fiscal the we acquisitions. first in the the expense. X% reflects XX.X% margin fiscal sales XXXX of products. up Group’s fiscal Group’s partially gross previously operating Electronic from of second other now of up space six net an six now to in six XXXX, the the to million and impact, approximate Electronic the asset the XX%, less previously XX% sales acquired over fiscal fiscal $XX.X in mix mainly Electronic XXXX. months first exclude from Further, Electronic XX% months months amortization year, XX%, first The from the a XXXX, prior growth additional the fiscal prior XXXX. The for With operating the margin second of growth Technologies net to prior of operating offset a million six estimates remainder from sales increased improved XXXX XX.X% from XXXX, intangible XX% Electronic any. The in for of estimate The up up Technologies million the fiscal the the Group’s second for increase products. the mentioned The fiscal of principally to XX% the demand XXXX million of of estimate the XXXX of Technologies growth These the to from to net full-year by XXXX full-year be principally quarter product six operating record defense from certain first mentioned came quarter asset of fiscal in XX% in from first up up favorable in $XX.X of months gross expense electronics increase and a more of improved XX% of net in improved months if improved products, partially product previously increase increased net increased margin

a growth time we digits has we that expect for of say demands I also XX-day which, one continue the doesn’t fit to the business customer of before, we over rate the growth, and heard organic literally of you grow ETG’s quarters this variety to on manage will mid-single commentary a business into and to like years the which always as is widely Historically, As the heard over of profitability, me to we and dozens as you’ve times, as maximize many say low-single to even neatly rate. reasons, in this as timeframes. meet expect that digits the varied case

longer-term businesses is in that the organic annual first for should have the organic point second while the and a than own on year less we our growth growth projection. I usually, quarter’s And feel very on very also overall excludes growth acquired year. our information of rate rate with our in lower our was our them. based it grow today, public acquired I a comfortable owned than net out measurement So targets, grown. year businesses businesses And conservative, we’ve basis, as growth have past I

to second things than overall was me, what in right we how I I’m past higher But businesses I that acquired – quarter, way pleased. So the the way the conservatively I right year, we the doing, nicely way things growth to which And in of again, and higher rate organic our growth be do our I measure way. consider report. businesses very at the look would include and the true in report think the are

ETG’s I’m profile. very back the So, Mendelson. pleased call Larry And with growth again, turn I the over to

Laurans Mendelson

from was XXXX, of first increased and fiscal agree impact first months first million a quarter per $X.XX higher of fiscal basically increase Excuse All $X.XX expense in me. six from six to the $X.X months that that to ETG, quarter and from with in the fiscal to X.X% shareholders to of I of up expense $XX.X higher six quarter million the efforts XXXX, increased previously $X.XX of XXXX, net from are of from and share per million in The the and increase up months SG&A adjusted of first $XX.X and second XXXX fiscal impact quarter to XXXX, as diluted XXXX distributed in further, the amounts the the amortization months amortization of the months in from increases million first $X.X $XXX.X The XXXX. share Victor, six first expense, and for XXXX, a compensation performance-based and of per months in new in that six first XX.X% dollar fiscal from first the of a increased quarter million, a ongoing to in fiscal the million our increase LIBOR the was million sales six consolidate the of increased principally fiscal I’m months increased income totaled $XX.X that Support to fiscal and first and sales the asset the the second acquisitions. $X.X intangible XXXX. the credit $XX.X the quarter with in which XXXX, second interest amortization six XXXX, XXXX. well balance the XXXX. higher higher from the you. million, outstanding months months $X XXXX, expense. expense six quarter the of product second from million as acquisitions. in and first XX% XXXX percentage assets of XX.X% and XX.X% in percentage was those on first XXXX. was $X.X average to of in up are and in was quarter for of respectively, fiscal due XXXX development up the in of the rates, in periods XXXX. in million of in in to expense incremental second months intangible it as of up $XXX.X our January in weighted second of and was SG&A not the SG&A each XXXX, of in of to XXXX income program. earnings quarter quarter million fiscal of million and XX% fiscal million the and XXXX, up from Depreciation first pleased fiscal I’m fiscal was product second compensation X% and The second from stock in about months second higher six up $X.XX was the the in fiscal first sure, $X.X reflect increased consolidated $X.X fiscal was $XX.X as XXXX. earnings growth share, XXXX our million six and all have of impact million second million months months quarter of million reflects related of fiscal split, XXXX, and in in in in second of continuing And acquisitions, expense retrospectively X-for-X under facility, of fiscal fiscal the XXXX. first the second from expense been compared in that six fiscal second first totaled XX.X% from a rate, X.X% XXXX the six to increased profile fiscal first XXXX, development six to performance-based six net Electronic of diluted $XX.X $XX.X sales fiscal the fiscal quarter the moving fiscal six attributable of and XXXX, The fiscal was well in acquisition diluted six months increase XX% the XXXX, expense. months expense XXXX, to in and fiscal represents up and Other of the too, Consolidated continue $XX.X and and months the increase months and million which the our Significant – Interest increases reflects up $XX from in expense million Research quarter both principally we quarter in invest six a XXXX fiscal $XX.X as resulted million the XXXX, revolving was new of significant. to And X.X% mentioned Flight increased Consolidated Technologies XX% of fiscal fiscal of second quarter fiscal in development. the XXXX, up in that fiscal fiscal second in as second was principally quarter to compared of at net fiscal $XX.X

foreign tax tax XX% a – things, on to among reduction the last a subsidiaries. of existing territorial to rate our income things, U.S. significant the of tax law, Job federal contains other to Act commonly earnings Tax resulting on in from legislation among comprehensive Last system the referred XX%, call, transition income as on and one-time and taxes. Cuts including federal to tax unremitted Moving implementation other in – changes the

we blended tax XX% reflect the X, our in Act, As of Tax that a January to result the a effective reduction effective estimate results annual in XX% U.S. and rate a to U.S. revised our XXXX, quarter and $XX.X federal rate of deferred in from fiscal XXXX. discrete XX.X% recorded tax provisional in rate federal million fiscal of remeasured first for XXXX. of Also, benefit the liabilities net HEICO a we tax

We first also recorded a $X.X XXXX on to in fiscal discrete the subsidiary. million our the of transition tax quarter unremitted foreign of of expense earnings one-time related tax

rate the was Our second to XX.X%, quarter the effective that tax in quarter of second fiscal XXXX XX% fiscal and from of in XXXX. decreased down

rate Our XXXX, fiscal The in fiscal XXXX. six XX.X%, of effective principally reflects the lower second and in six from and down XXXX first that of tax months benefit the the fiscal six U.S. months decrease first the of first tax the rate. decreased quarter to months of in XX.X% was

you of detailed when In in quarter one-time federal first our of to CFO, $XX.X the the the mentioned the to as the addition, and quarter non-controlling up well previously liability, the to listeners second Carlos six Net from six results remeasurement improved It happy it in in months discrete non-controlling decrease principally increase to call. of want a of ask. to and fiscal Technologies detail as and fiscal the are our able if Flight inclined will on interests operating months first tax second Macau, from Carlos to held. by you’re $X.X XXXX, which the months any be color the hopefully, so reflects deferred of the But Support will was of benefit very $XX.X XXXX, of Groups ask of partially fiscal interests first certain question in call nobody fiscal first up of Act, to fiscal U.S. very explain in If matter, complex tax million Electronic be more to in that the Tax XXXX. speak will you again, it’s and million you on want second transition explanation, million XXXX, six net the the and reflects months to subsidiaries from the expense. offset of increased the The impact increased in $X.X income million six XXXX. in XXXX the of that quarter attributable

full estimate fiscal interest XXXX to of a non-controlling pre-tax effective rate and continue For combined between rate we income. and the year, XX% XX% tax

flow. the moving over Now cash and to balance sheet

see can forecasted our position you release, press strong. from financial flow and cash extremely remain the As

flow activities by fiscal As was activities in the $XX before, fiscal the million by six Cash strong cash discussed second XX% million provided quarter operating totaled and we of months quarter XXXX. XXXX. from in of second of operating fiscal provided the to a $XX increased million first flow that up XXXX, $XX.X in

We flows continue to fiscal forecast and operation expect in cash record from XXXX.

XXXX. DSOs, efforts very No write-offs. from of a receivables, loss sales in number divided very ratio, April of more one been we receivable exposure. as Those October X.X April that these working of April credit by course, know days of improves from Our monitor current X assets current outstanding days our of XX who XX, on XXXX, as XX calls order of that capital little accounts has liabilities HEICO collection XX, And to was carefully up days times to XXXX. sales. limit down XX, improved as customer of of have you XX, to all times as of accounted for that in than was and receivable XX%

days the levels, higher represented lead the projects period turnover ended customers as demand and that requiring quarter of XXX in well slight XXXX. to reflects Inventory fiscal and support which that anticipated XXXX, XXX during to long backlog are compared second for higher XX, products April of for five and of XX% remainder April to increased fiscal material the the ended XXXX. inventory necessary current top buys, increase time net XXXX rate XXXX, both Our period XX, sales about days for as

very obsolescence have inventory. We in little our

need have very sign that, we If be policy. a business won’t because fill leading and positive a conservative to or the in of inventory do don’t additional fill a buy operations to management, We will delivery. materials lengthening not future, we we to orders. as increase large all And inventory we very that as look at on-time our

to really shareholders’ to XX.X% as So as Total of is XXXX. debt from XX.X% very equity future. of April as million April to that XXXX. for of that equity and Net XX, the of was October shareholders’ from XX, us, XX, positive down XX% October XX, a ratio was debt $XXX.X XX.X% XXXX, sign XXXX, as down of

at times ratio ratio. the of of XX, is of to the the XX, X.XX is extremely, growth critical compared this $XXX flow very look XXXX, improved – strong net And of ratio debt have million AeroAntenna still to times to our considering XXXX, acquisitions EBITDA over X.XX is as Our a for October April me the we to one, low. debt ratio, earnings cash and which to extremely EBITDA and represents times and acquisition year our that was X.XX a largest ratio and to made low still net all as EBITDA

to aggressively growth acquisition significant to continue have till We to maximize flexibility pursue the to We returns. plan opportunities maturities financial to and our XXXX. no fiscal high-quality debt utilize accelerate shareholder

increased Support XXXX growth look the any our anticipate and of outlook. of for across ETG, sales net from the demand lines. within the we fiscal ahead resulting majority product If remainder Flight to Now

developing acquisition and to aggressive commitments time the and our maintaining our and penetration, further continue will same flexibility. products financial services, strength We new at market strategy

capital have company. constrained been – not this heard a say never are me and We you’ve before,

we access strategy. revolving a this us billion have $X.X growth controlled and our helps accomplish to to As facility, credit unsecured committed

sufficient flow net our XX%. sales to sales to XXXX have at to net prior possibility XX% XX% to our our doing addition our Based be to billion estimate XX% We XX%, XX%. XX% and approximate income prior net XX%, that to operating XX% and from from estimates was growth up we because to visibility, to consolidated that, anticipate to near of up to that of consolidated of income feature. as of economic the and XX% program. In have no and future, current have moment, XX% margin net accordion now it At we we growth growth on this an continue estimate to we our cash thoughts in in year-over-year increase a $X.XX fiscal

to flow to expense $XX We approximate CapEx operations amortization million million, estimate we continue and cash approximate to $XX and and $XXX depreciation million. approximate to anticipate from

for delivered acquired course, the took the where and everything quarter. discipline another began. closing, respect HEICO’s these end for has members to credit work additional of have utmost make team, businesses. like any management it hard company I members exclude success. do navigate outstanding team would the these our In again, and to I Of team deserve results sort the successfully estimates to HEICO’s

to That team intend usual members I like would intermediate contribution, extent prices. questions. profitable prepared long-term my I And with strategy continue the laser-focus a focus passion to talented leading floor of cash as at with fair a and acquiring towards these the is and on open on growth For remarks. to businesses a generation any our

Operator

Credit [Operator comes Instructions] Rob question from Your first the Spingarn from line of Suisse.

Robert Spingarn

everybody. morning, Good

Laurans Mendelson

Good morning, Rob.

Robert Spingarn

for bit. you Good simple wanted this Victor, big guys. a to defense you from budget? to high-level I Eric’s your question see Are Victor – group. budget and results XXXX segments enhanced – the starting spending of for here, into dig some bit a little

Victor Mendelson

activity see little sort of signs and think, we’re beginning to bit think a it, of it, seeing of activity. lot that’s I pre-purchasing the I not some we’re the yet, a of

So not I it. lot of the POs a say but firm from would signs,

Robert Spingarn

this of next year kind thing Do for you is think more you? a of

Victor Mendelson

say, would I impact I would the in to XXXX. because in and into but fiscal fiscal fourth the some would fiscal quarter, some of -- quarter, in say, so in more than quarter, maybe XXXX quarter, XXXX, year. probably next it we’re fourth tell. now in third I third Difficult

Robert Spingarn

businesses particular just, to this? see Okay. of this some pieces where Are that of really from of spending benefit ETG what on Victor, within are the the there then for will close that you’d topic, pushing DoD some is here? And kind

Victor Mendelson

that broad-based are there it’s I the feel it pretty And But AeroAntenna more our actually will sort too. broad-based. would more like are think speaking, there. obvious got a ones I – some of feel more companies it, pronounced of and think We’ve generally other larger, Robertson probably acquisitions Fuel, that think, notable, I lot are recent us. of that for we and and

Robert Spingarn

organic was Eric you. about that. I appreciate Okay, thinking for growth. I your

the the X% was half-year. said, you I If for quarter it think, right? I for got and that X%

Eric Mendelson

way around. I think, the other was it

Robert Spingarn

okay? it Was

Eric Mendelson

Yes.

Robert Spingarn

Okay.

So…

Eric Mendelson

– quarter. second the in in the That’s the accelerated to It correct. the growth accelerated quarter first compared

Robert Spingarn

of the more that strongest to factors? every the thre, I’ll traffic, talked want the I past or seeing all among and of know you question. new sense those again, now we’ve in customers you Within is I catalog? higher Are that, following what ask get the but from parts a in a it’s mix

Eric Mendelson

really think, repair it’s products we’re customers new the It’s want our in all the the or I those. We’ve finding whether development, big product got new but products parts out area. going specialty of that our a parts. it’s or additional

It purchased. that of already So it’s don’t in customers – all almost – I say products it’s totally And summary, the more new is price. it products. that get volume-related. they’ve is would buying it’s existing We

customer-friendly. price, we So know, we’re as where, you don’t very push

X% maybe – numbers organic is and just X%, it be it’s would let’s than when areas. less so the may second the different is our a a broad-based be X% just across Our say, of X% – look X% growth, of And it’s price. lot roughly of get even year price, in or that a products we you volume, in at pretty specialty excluding quarter,

Robert Spingarn

opportunities then in But And business others traction your sticking just, of? that the Okay. add aware there should any the market Eric, getting talk be are externally? to ETG. PMA there about – side, are mostly of FSG to And at we – you over do the just with M&A that side we business on

Eric Mendelson

a many opportunities. I there PMA think, said The are this have and couple tough is times. very market a market, small I of

do and You’ve for easy. single got competing fighting the they OEMs of every not piece it make business, and

save go in organization, I airlines $X resources, One I each our working very very and particular if them relationship, think And second a are we unique know the dealing on they the money we and and we we because products these with believe, we’ve strength, the is focus them teams, because working well specialized channels, breadth And financial that comfortable an hard – happy in in airlines money. fronts. position area. with can airlines. got with them and with HEICO in with mantra large depth, anyone we do we repair, those with company the the the airline, of bring. a save HEICO they PMA, we of and the is And billion which that and think, are technical three we’re that if that the cap really market distribution. is we work $X well billion, multiple When and is the is do very push third going

probably probably the bring and that I So with as we the force of perhaps PMA industry while is there really what than being there sales space the it are others a guys. and engine for the very component HEICO, the others couple distribution large a the other other think, than is have and in and airframers difficult well, the space, repair largest makers five the major out in OEMs we

us. nice be will So to for growth we’re I continue out it a area think, there. But

Robert Spingarn

Carlos. more. Okay. Apologies, is Larry, you I Well, thank have for for one that. one this

Laurans Mendelson

Okay.

Robert Spingarn

cash this normalized it higher or go QX on of I’ve gotten deferred year future? the conversion is to the conversion the we tax and in the in But benefit up the just you. the for four to expect of CapEx, between Carlos, back should three

Carlos Macau

maybe have tax auditing going hopes. new it more think statement conversion fiscal little our to rate because will have you’re used regulation, situation the flow I typical and a high a back operations, you’re to this I in seeing transition think with now a that into I to XXXX. year bit cash see of very that from like HEICO normalized turn of in we

some, flows record we we’re is now, than cash that. you of of pointed flow better this change do to And hesitant making from some I But HEICO. operations that or that impact $XXX tax and the right that was cash We’re million challenges course, hope operations, the in for as projecting to deferred from that quarter. in always investments this year, given out, growth cash flow raise that

Robert Spingarn

Okay, you, everybody. great. Thank

Carlos Macau

Your welcome.

Laurans Mendelson

Rob. Thanks,

Operator

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

Greg Konrad

morning. Good

Laurans Mendelson

morning. Good

Greg Konrad

impact consolidation? mentioned discuss distribution in some been or any if last the in any see from has may You be opportunities that There seeing, question. you Can you’re industry. you consolidation increased

Eric Mendelson

is we opportunities. this Eric. see Greg, Yes, Hi, do

operating as showing to Our that of unique to are limited sales customers I that entrepreneurial industry, growth the or details. terms OEM retains in intense a we’re business, very organic. We the and which through save extremely manual number distribution understand technological focus life they the how in well I is because we it start-up. and proposition in that sales save margin them It’s of mean, still company. in differentiator and a the money, alternatives deliver take product distribution and that Again, We environments operate to space. able all basically to is on competitive think, that lines. in whether out a it’s of very order use started that in whether in customers products increases small can company its business And increases principals money. our focus by it’s our is the

good about in find general, still And business. to I’m to has us, think, been for I optimistic grow been your extremely that consolidation because areas able additional question, answer So we’ve to in.

Greg Konrad

back just mean, through kind the past looking the of some I has business on at ETG then I the climb. continue ETG, of on moving And to margin? they mean, or Is that several to is just improvement you. I years, parts the – mean, structurally some accretive there just Thank margins maybe of M&A continuous of changed parse the acquisitions? more the anyway

Victor Mendelson

sensitive. mixed Victor, the on we the very way. I It’s what sensitive think by This do is ETG side. it’s mix

always keeping lean and at our is I focus think, businesses, are they costs and there on continuous low. focused improvement

you out As is cut and amounts are I which fat companies. if find from you not not of – organizations that large go business they’re a can of rule look different fat the lot organizations. HEICO, thumb, of and a within mean, in going to and you’re just

sort of I think, sections go a off don’t in hive they that. of you’ll we in companies lot really and find have whole groups, and

typically, a it ways. state they of operations. finding is steady So are lean But

overhead. adding quarter. on more points are without close runs things this XXX that to see increase, But will do margins. efficiently XXX in finding do and/or say you’ll I XXX points between strong. more As if produce amortization They our volumes basis you to And fact, they’re to our basis this look, ways and

So and be who certainly try that I And says, count on this are really on closer my own to guys and comes get out improvements quarter, so. didn’t great. get all-in, not in that. I it our go about mind, our margins looking out for to If to I’m margins. I just well, anything, don’t if that. going and XX% for push improvement not don’t margin There’s certainly on can’t ashamed gee really and operating somebody I there. or to nothing those push XX%. got look go I’m I XX% what, But penalize we to And

Greg Konrad

Thank just on question you. And ETG. one last

around some of single-digit you mentioned kind shipments growth range. back-half it In a bit light, on terms mean, to of organic mid mean, QX capture that you I just of the I continues that? little more but the QX, look the of slipped of year, out any was outlook that hope were and at that you color there kind

Victor Mendelson

honest, to I many not see that’s in – it’s past and will happened us unusual to that happen. that the that the quarters mean in many Yes, happen And be for quarters future.

the expect would of the And that of in that’s it. that, I year. pick of see So we’ll up back-half part some

Greg Konrad

you. Thank

Victor Mendelson

other We’ll back-half the of in side see the the of benefit year. that the

Carlos Macau

the this is large firms. lumpy on very a with I years. been many history much doing It’s for mean, of Carlos. contingent that’s – business. That business that segment It’s

We’re customer-friendly. very

late. it will We not when not shift they before and need

is point, rate cause so can on it’s for to run mid for it profile. that’s But quarter, the quite lumpiness what a we XX-day been sometime. segment a And a and Victor’s basis, on the growth cause single-digit history – expect in growth yearly that this about period can quarter, some

Victor Mendelson

Victor. is this And

be idea the going XX you’re if HEICO. noise and time to the margin. going have are, historically, as it. move the that, we the and to we that maximize around. sort maximize that with we and that are have fall you have time the performance. We And just they to be But days over in look comfortable we and of ETG our the is at to level You And view at meet it at again,

are our and is where all positive in-between. will is flattish And you growth sometimes quarters can And very quarters, there and where see I assure – thing there growth I negative. that is, you So are we if one operation margins customers. that’s in the that’s that HEICO, see will you and that, invest and you we takes what of business allow feel care continue the what because to maximizes the in

Operator

Your next Godfrey of King. question George comes from C.L. the line from

George Godfrey

Thank morning, you. gentlemen. Good

Laurans Mendelson

morning. Good

George Godfrey

and question. per product Question rate data for is And thank where Nice my the for parts XXX you the to adds now? Eric. us size year? of can taking now PMA quarter, Eric, you base is still the annual the tell around XXX

Eric Mendelson

XXX. within George, it say, that would I XXX, is Yes,

it we than which somewhat consistent above last can you include similar that XXX. with repairs are PMA But get the years. many rate to parts the development the is some then If of basically, do

George Godfrey

them new I’m And to then, on ones? specifically, and/or internal the products comments acquired in that of contributing HEICO? perhaps Eric, thinking developed from it. Are Thanks. Got growth. you companies those mentioned new you’d some internally products the your highlight to Could developed product are

Eric Mendelson

products that’s acquired the internally. to George. generated. the ability There these a They Yes, internally George, our for got good is PMA last no question, many business growth are within XXX% generate years. We’ve

process design used Our customers there. and really want to organic it’s growth all the be HEICO

George Godfrey

very you Got it. much. Thank

Eric Mendelson

Thank you.

George Godfrey

Thanks.

Operator

from Securities. comes Solow of Your CJS line Larry from next the question

Larry Solow

morning, Good Great. guys.

Laurans Mendelson

Larry. morning, Good

Larry Solow

in this Can margin it perhaps the is line a speak looks Is – ETG quarter the gross you I’m on mixed-related margin and improvement guessing lot more that thing? the like that was driven in that’s of And was Group. driven just the sustainable? – a

Victor Mendelson

Yes.

We doing all that’s have, higher can that’s defense businesses of So within did principally The were tighter Larry. requirements those pickup was on the and of lot work, what segment, know, of drove it. in margin A products however, product. specs most mixed profile the the correct, was be you’re of with that the what a no Most some it in ETG. quality bit you type some and that quite nicely. of in as

where a Defense way quarter. businesses of our the led up again, the all pretty and one that for another bit quarters, the it of So cylinders. margin on much on those were gross had drag was, firing all a

Larry Solow

XX Eric the Any pretty years? little prices spending results quarters. have Okay. pretty couple to a seen over last remains a the passenger And in bit on over little bit it – oil next least, Any for you of environment, the Aftermarket changes? like, remain perhaps sort than question high-level last strong. consistent side. change your with six the Obviously, it’s assuming change you’ve it been consistently to changing at seems few patterns months? over the demand then of Any looks for guys they high last like are

Eric Mendelson

growth really in last now, I’ve in fluctuation the We’ve demand. And not as quarters increased of fuel terms many retirement consistent just our with similar our salespeople met due the we’re No. and customers, any aware of aftermarket you our I seen with reviewed prices. retirements that, of tell plans. to can

change operate customers there’s certain built to any advised we’ve under now as have that still our retirement We result a of to and been prices. models in our utilization we’re fuel that. continuing But

strengthening of the continuing say, building would the just I aftermarket. So

Larry Solow

a And also increase little bit net only Okay. your modestly. I And just one has but depreciation income on I of then and cash lack flow follow-up question. an the the realize guess, increased – higher.

bit that the capital Carlos, flows perhaps sort the usage the outlook on you remaining, same. reason for working tax the a the deferred mentioned? cash then just issue, of So and remained little Is

Carlos Macau

I in due this pickup some say, see. We the we a had CapEx that had is lot spoke we’ll but Larry, of and would it, about quarter, for earlier. acquisitions deferred a to I appreciation tax situation in some

my As want plays get before you quarter belt know, change we QX that another our conservative. generally to and I how see out is guidance under number.

Larry Solow

Understood. Great. Thanks, guys. I appreciate it. it. Got

Operator

of question Investments. from Lipke from Drew the next Stephens comes Your line

Drew Lipke

morning. Thank for you good Yes, taking time. the

Laurans Mendelson

morning. Good

Drew Lipke

okay? you Are

Laurans Mendelson

good morning, Drew. Yes,

Drew Lipke

Yes.

Victor. for question first Just

of think impresses that quarterly months. need large is there in project aware of and compared we any inorganically deviation to or cause that as the kind the You fiscal the year, first seasonality you’ve any at growth could maybe kind as curious highlighted be that six you timing that I’m the the or that business look AeroAntenna, through seen of of, And to of first-half? variability second-half with we

Victor Mendelson

seasonality. There at there No, isn’t Drew, really Victor. is isn’t Hi, this Aero. the

the delivery schedule course, quarter. Of different is every

going to not of months are our shutdowns where side, say, And particular same, either the there’s not things side holidays the there are it’s or a at be seasonality customer around factory So that. there the let’s year-to-year. year, but and repeat like

call may So be where I it a of it may for and But slower material weeks see wouldn’t couple that. usually. we

Drew Lipke

Al both Eric, drag organic longer products kind And And and underlying quarter. in about right. like no then parts it we in parsing there? repair Thanks, aftermarket the out the the just trends some you demand overall of transfer, specialty were of sounds Can then, Victor. then the talk saw growth replacement and maybe quarter? that

Eric Mendelson

anticipating, believe quarter. second that very in in beyond we’re strong bit commercial we’re programs, slipped some the a of be the year, still second-half which going to a of the going on are that the and to were we products, specialty forward. would the we’ve some were That right. to But think particular, little were were programs also be as There second is very, the programs, going With due track, price. with right got little sales there the about are is the all to it to defense to And in said, second-half X% organic quarter, regard in the specialty to year. due products, again very regard but just rebound With that. growth, military very comfortable slightly was almost which these very excluding down, slid in to and volume

Drew Lipke

not also maybe then improved then utilization, FSG? more And that should better lot of driving rising costs? in about commodity we mixed, or gross what’s just Is margin how benefit, impact the volume or since there’s the Okay. and a that price think of

Carlos Macau

Drew, Carlos. this is

improvement gross I that in think margin. of majority the FSG, margin of the was some

our does that our of OI, As back that to mode, specialty – it’s so business that online, was additive some helpful. we to growth and profit product gross back in get

from AXC I also Carbon have But we overall so pleased. from Design XXXX. – amortization that We and was bought in drag the by pretty

of come consistent OI If you second, last a was pretty was at year. overall, – the that’s those look the what between margin it quarters. acquisitions And in big slug it amortization a just two for margin of

mentioned the of of that So naturally, their this situation. that recovery some the helped from gross margin start we Eric improvement QX towards half latter

be expectation an as Eric do uptick our So specialty will as good we we that of margins. well that products QX, last I have even and, in have believe, will an mentioned, for have the course, quarter

Drew Lipke

That’s Carlos. Thank you, helpful. Thanks, guys.

Carlos Macau

welcome. You’re

Laurans Mendelson

Thank you.

Operator

Your Instructions] next from [Operator line Michael question of from comes the Ciarmoli SunTrust.

Les Sulewski

Good morning. Les for is Michael. This in actually

Laurans Mendelson

Good morning.

Carlos Macau

Good morning.

Les Sulewski

market? to product certain actually also, if back communications? it any go to just kind rate. the that relative of give a came previous more you you from space end color on timing line indication then markets question Victor, and could us end or it’s us all specifically give bit I the from and XQ. can growth And and ETG in of asked what of I mean, organic understand, But

Victor Mendelson

last Could catch quite your of extent didn’t – question. last question I of you… part sorry, full I’m the the the

Les Sulewski

communications? markets us on seeing Yes, are could end you in little a bit specifically of color you and kind space Sure. give more

Victor Mendelson

know, Well, low, businesses nicely seven it is year. where difficult weakness I’ll you about pretty fairly market. cover remaining this our doing were space in orders seeing satellite are year that satellites as I the where overall. Geo more think, I think, is the first. But and In last overall some and healthy Geo for space and and low probably is communications, we And

on constellations the the are, happen And driven – and optic I is that in and we the plus sat factors being terrestrial ordinarily of capability. fiber those and that a that sells including on the of some that extent the that’s are to number new wait-and-see think, with by some will improvement side. those the technologies – commercial what products announced attitude so have of low side is that’s to among That LEO

a bit debate there glut there’s a GEO is commercial there so of and And little for of perhaps need a communication. was about what capacity sat

good for take and and space sort market. I expect that’s a weaker of So us But is us time some in it we where that some markets for would out. remains overall, quarter, will space doing saw in the to well the

of in again, in year. the In it sort of terms of it’s the quarter. as had in reverse growth to prior the the as of we get high business, itself wasn’t would rest as where the been expect remainder mixed on that the But I

it. about alarmed too not I’m so And

Les Sulewski

I the needs specific lack order packing you. you to and real Got of I just this guess, kind – portfolio? M&A, it. And Thank team. go goes for in calls or overall, a for But guess, product any would the and on

Victor Mendelson

are opportunistic line and you or that something focus product we market sort. opposed as we’re where know, just trying or Well, a very on to particular as of adjacency to opportunities a fill the

So we cast historically. the net broadly

and for wait a up itself We it’s to are up never that’s opportunity particular to not open niche move if something going to an and on we’ll fine, else. opens it to it present has

is adjacent adjacent is in already to is us net to obviously, of in we anything broadly, the continue just there’s already and to to of very anything interest of already There’s us. has we’re estate, that’s interest and we’re us So so do. lot we’ll adjacent cast something speak, grown what what to And real lot to dramatically a territory. just to a of

opportunity. So of it’s in the there’s this at terms just a strong And tremendous of amount point. pipeline, acquisition very

the mean represented got in at both businesses that on we be. go that diligence on got a you to sure the will them. acquisitions close to and Historically, the are they’re do though looking know to of business. of due as sides and lot what make we’ve right now We’re And doesn’t we’ve

that businesses once we – the a certain or tend to the pretty with record think a I to that acquired businesses good with see Although ability through negotiation our have level follow we’re we with we talking on reach them.

know So we a But of working close lot on. actually happens. until got if to you’re don’t you ones it good going

Les Sulewski

guys. Thank that Great. you for color,

Victor Mendelson

You’re welcome.

Laurans Mendelson

Thank you.

Operator

Global. And of from line Josh your next comes Seaport Sullivan from the question

Josh Sullivan

morning. good Hey,

Laurans Mendelson

Josh. morning, Good

Carlos Macau

Good morning.

Josh Sullivan

impact looking portfolio? maybe Just you next and aircraft across question between follow-up generation the just guys retirements. How in are the as legacy a on oil balanced

Eric Mendelson

since – in spec been for in our products, years the repair space, original have of definitely or PMA and introduction XX are more greater aftermarket the the that the typically, We the service roughly which business, to in aircraft.

So if XX until you delivery first by retirement. definition, from handle we from sort it to years, will,

side, right in distribution we a little participate need in new specialty there, the are predominantly equipment. we it’s moment both. we’re the On of – they products upfront that’s aftermarket the the but parts that There’s In bit space.

and the the aftermarket component. specialty in in the ETG entire the there lifecycle. say, cycle the of having So than products, the cycle. that’s we’re of I But well as of much beginning some as more part is would later more And part through like then

Josh Sullivan

Okay, proved then But on deployment. too capital valuations attractive thanks that. not deployment maybe priorities say are what targets capital mean, be and behind if they’re. M&A? And rich, of I just M&A your to to other one for

Victor Mendelson

Well, again, our focus is the business. definitely on M&A and growing in

well cycle buy can little for we in the buy new them is the difficult if for patiently being case, for to time. cash time making equipment if when But be increase are in be sit we looking quite we are But go we’ve afraid that’s we product often to all in to, created prudent line. terms period it the seller to of but are opportunities. time spending and is far, full. what and companies done various companies more accumulate can quite we the becomes new proper to Those feel year. able times And couldn’t very order homes, a right investments not there businesses. pipeline that the this find and where a and us. plant are We increase would the a And to and of The so there spend just

We’re opportunities. looking a lot of at

able continue in So even pretty we’re to to that capital optimistic we’re be going to deploy this market.

Josh Sullivan

everyone. you, Thank Okay.

Victor Mendelson

you. Thank

Operator

And we further have time. no this at questions

Laurans Mendelson

third a to for participating we quarter to August. summer to questions And further look no to if us, speaking are release I for or the and by in wish you our and have there Well, forward in visit, want And you call. listening questions, late you are if to we August. you we telephone in this late personal We like. sometime good after thank our everybody speak any available meantime, you any if will of earnings,

that you. is the the with that we Thank extent call. So are finished

Operator

This today’s call. does conclude conference

may disconnect. You now

HEICO (HEI) 30 May 182018 Q2 Earnings call transcript