HEICO CORP NEW earnings calls

Which categories drive growth

Q (Lawrence Solow · CJS): Analyst asked whether one category, like defense, drives the strong organic growth and for color on bookings behind these categories.

A: Management said growth is broad-based across verticals, with industrial technology showing the highest percentage growth while defense and commercial aviation were also extremely strong. They said bookings and backlog are very strong, with customers asking to expedite orders and following up with more orders that fill the backlog.

"Yes, it is very broad-based." — Victor Mendelson (CEO·CHAIR)

ETG margins and cash flow

Q (Noah Poponak · Goldman Sachs): Analyst asked if the ETG margin outperformance is mix or structural and about cash conversion, free cash expectations, and acquisition size going forward.

A: Management said ETG is mix sensitive and they do not want to change public margin expectations yet. They said there is no structural change to cash conversion; sales growth lifts cash flow because corporate overhead does not grow commensurately. They also said they have near $3 billion capacity to pursue acquisitions of various sizes and their M&A pipeline is very full.

"I mean this segment -- you've known us for a long time, the segment is quite mix sensitive." — Carlos Macau (CFO)

Strength in Europe and Right to Repair

Q (Peter Arment · Baird): Analyst asked about demand pull from Europe, including Exxelia, and about potential impact from Right to Repair legislation.

A: Management said Europe is very strong, both shipments from the U.S. to Europe and operations within Europe, and Exxelia is doing extremely well. On Right to Repair, management said HEICO businesses are watching opportunities and will pursue them, but they would not comment on specifics and will see how final outcomes play out.

"Europe has been very strong for us." — Victor Mendelson (CEO·CHAIR)

FSG growth breakdown and PMA adoption

Q (Sheila Kahyaoglu · Jefferies): Analyst asked for the parts of FSG growth leading to 12% and specifics on component repair, specialty products, PMA adoption, and defense vs commercial in specialty.

A: Management said parts and distribution grew 15%, specialty products 14%, and component repair 5%, while organic operating income grew about 20%. They said PMA and DER penetration are doing very well where customers want alternatives, and specialty products growth is largely driven by defense with very strong organic defense growth.

"the 12% organic growth, which we're very happy with on revenue, pales in comparison compared to approximately 20% organic operating income growth." — Eric Mendelson (CEO·CHAIR)

Growth in newer end markets

Q (John Godyn · Citi): Analyst asked about HEICO's exposure and outlook for fast-growing themes beyond aerospace aftermarket like missiles, space, IGT, drones.

A: Management said HEICO has been active in drones, defense tech, missiles, industrial tech (including AI and data centers), and commercial and defense space, with customers asking to 10x production in some cases. They emphasized steady, controlled growth and noted Ethos acquisition supports IGT repair demand.

"We talked about drones, for example." — Victor Mendelson (CEO·CHAIR)

Risks, hiring, and venture investing

Q (Ronald Epstein · BofA): Analyst asked what worries management, supply chain and labor status, and whether HEICO would pursue corporate venture capital.

A: Management said they focus on traditional operational areas like customers, people, acquisitions and capital structure; geopolitical events and input cost inflation are items they watch. Hiring remains challenging but manageable. They said they do not plan a VC fund but will make selective strategic venture investments when needed.

"As an overarching observation, I don't see us setting up a venture fund, having a kind of a venture tech arm as other companies do because we don't see that being in our remit broadly at this point." — Victor Mendelson (CEO·CHAIR)

DoW Framework Agreements and Wencor impact

Q (Sebastian Rivera · Stifel (via Sebastian Rivera)): Analyst asked for updates on DoW Framework Agreements and how much Wencor helped FSG margin step-up and what inning PMA adoption is in.

A: Management said they're beginning to see POs and contracts from those frameworks and expect more to come. On Wencor, they said synergies have helped, the combination has been phenomenal, and they think they are maybe in the fifth inning of opportunity but still have plenty more to go.

"So we're beginning to see some of those come to fruition." — Victor Mendelson (CEO·CHAIR)

Levers to grow commercial FSG

Q (Peter Skibitski · Alembic Global): Analyst asked what levers remain to drive organic growth in FSG commercial amid flattening air traffic and whether HEICO will open more repair stations in Asia.

A: Management said there is unsold potential and customers have big ideas; their standard playbook (product, market execution) will drive growth and sales are excited. On Asia, they said they've been successful with their positioning, have multiple sales offices and some operations there, but declined to get into specifics.

"Well, there's a lot of, I would say, unsold potential throughout the entire business." — Eric Mendelson (CEO·CHAIR)

CapEx and impact of defense acceleration

Q (Scott Mikus · Melius): Analyst asked about CapEx plans given customer requests to expedite shipments and growing backlog, and whether IPO performance affects M&A pipeline.

A: Management said the need to expedite generally does not lead to material CapEx change; typical investments are incremental equipment and they expect CapEx around 1.5% maybe up to 2%. They said higher sector valuations have influenced deals but it hasn't materially reduced target opportunities, and poor IPOs could create future M&A chances.

"As a general rule of thumb, this is not leading to a material change in our CapEx." — Victor Mendelson (CEO·CHAIR)

Margins of recent acquisitions

Q (Joshua Korn · Wells Fargo (via Joshua Korn)): Analyst asked about margins on revenues from recent acquisitions.

A: Management said they generally do not break out subsidiary-level margins, but they expect most acquisitions to have EBITDA margins of 20% or greater as a gating factor. They added that acquisitions bring intangible amortization which can reduce operating income but not typically EBITDA.

"I will tell you that when we make acquisitions, our expectations are that most of the deals we close, the EBITDA margin needs to be 20% or greater." — Carlos Macau (CFO)

Long-term shareholder comment

Q (Rene Plessner · Rene Plessner Associates): Analyst (shareholder) commented on long-term returns and longevity; not a question seeking new info.

A: Management thanked the shareholder for his long-term support, reflected on building a long-term industrial company, and said customers want to buy more from HEICO but capacity limits what they can offer today. They expressed gratitude and excitement about the future.

"And it's because of our people, our quality, our pricing, and frankly, the vision that we had to build a long-term business, not a one and done or where you run up the stock and run out the door, that kind of thing." — Eric Mendelson (CEO·CHAIR)

Component repair and parts shortages

Q (Gavin Parsons · UBS): Analyst asked if repair growth is slower due to supply chain bottlenecks and whether it's improving.

A: Management said parts shortages are a big issue and backlogs waiting for final parts have definitely impacted component repair; the situation is generally consistent—not materially better—with some areas improved but others new problems have appeared. They also said repair gross margins are expanding as more PMA is used, which lowers revenue growth but raises profitability.

"When you've got a component and you could have 99 parts, but you're waiting for the final part, you can't ship." — Eric Mendelson (CEO·CHAIR)

Air traffic slowdown risk

Q (Shaina Zuber · Morgan Stanley (via Shaina Zuber)): Analyst asked if slower RPKs would start to impact commercial demand and when that might flow through.

A: Management said they have not seen that impact so far and noted airlines tighten cost focus when RPKs slow, which can mitigate demand decline. They emphasized HEICO's unsold potential helps them manage industry slowdowns better than others.

"Thus far, we haven't seen that." — Eric Mendelson (CEO·CHAIR)

DoD contact on Right to Repair

Q (William Barrett Taylor · TD Cowen (via Barrett Taylor)): Analyst asked whether the DoD has approached HEICO about Right to Repair and how involved industry has been in discussions.

A: Management said they are aware and involved but would not discuss specific conversations, and reiterated they see good opportunity for HEICO in this area.

"We -- I can say that we're very aware of what's going on." — Eric Mendelson (CEO·CHAIR)

Working capital and cash flow drag

Q (Matthew Akers · BNP Paribas): Analyst asked about working capital trends and whether efficiencies are possible as growth continues, and noted FCF strength despite working capital drag.

A: Management said working capital will grow with organic growth and they made strategic inventory investments to fill backlog, expecting Q4 working capital similar to this quarter. They also noted a $70 million to $75 million payment to the estate of the past Chairman and CEO will drag Q4 operating cash flows.

"I expect working capital will not be any different in Q4 than what we saw this quarter." — Carlos Macau (CFO)

Margins in other end markets and interest expense

Q (Louis Raffetto · Wolfe): Analyst asked if other end markets have similar margin opportunities as aerospace, and whether interest expense included debt issuance costs.

A: Management said some other markets can have similar margins depending on the products and Industrial Tech has very strong margins; IGT in particular has opportunity with similar technology and lower fixed costs. They confirmed interest expense did include debt issuance and amortization costs related to the line of credit.