Heico Corporation

Certain statements in today's call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. High-cost actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including the severity, magnitude, and duration of the COVID-19 pandemic, high-cost liquidity, and the amount of timing of cash generation. Lower commercial air travel caused by the COVID-19 pandemic and its aftermath. Airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services. Product specification costs and requirements, which could cause an increase to our costs to complete contracts, governmental and regulatory demands. Export policies and restrictions. Reductions in defense. pays for homeland security spending by U.S. and or foreign customers or competition from existing and new competitors, which could reduce our sales, our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth, product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales. Our ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest, foreign currency exchange, and income tax rates. Economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues, and defense spending or budget cuts, which could reduce our defense-related revenue. Parties listening to this call are encouraged to review all of HICO's filings with the Securities and Exchange Commission, including but not limited to filings on Form 10-1, Form 10Q and Form 8K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by the applicable law.

Is that it? Okay. Well, thank you, and good morning to everyone on the call. We thank you for joining us. We welcome you to the HICO second quarter fiscal 21 earnings announcement teleconference. I'm Larry Mendelsohn, chairman and CEO of HICO Corporation, and I'm joined here this morning by Eric Mendelsohn, HICO's co-president and president of HICO's flight support group. Victor Mendelson, HICO's Co-President and President of HICO's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and CFO. Before beginning my review of the operating results, I'd like to take a moment and thank all of HICO's talented team members for their loyalty and high performance during the continuing challenges brought on by COVID-19. The dedication to Heiko's customers and to the safety of their fellow team members has been commendable. And I want to thank every member of Heiko's worldwide team to be proud of what we accomplished during these unusual circumstances and to recognize that our future is very bright and we will exit this COVID-19 period a stronger and more competitive company. I'd now like to take a few moments to address the impact of COVID-19 on HICO's recent operating results. Results of operation in the first six months and the second quarter of fiscal 21 continue to reflect the adverse impact from COVID-19. Most notably, demand for our commercial aviation products and services continues to be moderated by the ongoing depressed commercial aerospace market, which we know is beginning to rebound and return to normal. Looking ahead to the remainder of fiscal 21, we're cautiously optimistic that the ongoing worldwide rollout of COVID-19 vaccines will have, and in fact is having, a positive influence on commercial air travel and will generate more favorable economic environments in the markets that we serve. Summarizing the highlights of the first six months and second quarter of fiscal 21, we are pleased to report record quarterly net sales within the ETG group and our third consecutive sequential increase in quarterly net sales and operating income of the flight support group. The ETG group set a quarterly net sales and operating income record in the second quarter of fiscal 21, improving 11 and 9 percent, respectively. These increases principally reflect the impact from our profitable fiscal 20 and 21 acquisitions as well as very strong organic growth of 19 percent for our other electronic products. The flight support group reported sequential growth in operating income and net sales in the second quarter of fiscal 21, and they improved 37 and 16 percent respectively as compared to the first quarter of fiscal 21. our total debt to shareholders' equity reduced and improved to 27.1% as of April 30, 2021, and that compared to 36.8% as of October 31, 2020. Our net debt, which is total debt plus cash and cash equivalents of $199 million as of April 30, 2021, compared to shareholders' equity ratio improved to 9.2 percent as of April 30, 21, and that was down from 16.6 percent as of October 31, 20. And this provides HICO with substantial acquisition capital in the balance of our $1.5 billion unsecured revolving credit facility as well as other available capital. We are not a capital constrained company. Our net debt to EBITDA ratio improved to 0.47 times as of April 30, 21, down from 0.71 times as of October 31, 20. During fiscal 21, we successfully completed one acquisition and we have completed five acquisitions over the past year. We have no significant debt maturities until fiscal 24, and we plan to utilize our financial strength and flexibility to aggressively pursue high-quality acquisitions of various sizes, which will accelerate growth and maximize shareholder returns. Cash flow provided by operating activities remained strong, increasing 2% to 210.1 million in the first six months of fiscal 21, and that was up from 205.9 million in the first six months of fiscal 20. In March 21, we acquired all of the business assets and certain liabilities of Pyramid Semiconductor, Pyramid is a specialty semiconductor designer and manufacturer which offers a well-developed line of processors, static random access memory, electronically erasable programmable read-only memory, and logic products on a diverse array of military, space, and medical platforms. We do expect this acquisition to be accretive to earnings within the first 12 months following the closing. At this time, I'd like to introduce Eric Mendelson, co-president of HICO and president of HICO's Flight Support Group, and he will discuss the results of the Flight Support Group.

Thank you. The Flight Support Group's net sales were $429.6 million in the first six months of fiscal 21, as compared to $553 million in the first six months of fiscal 20. The Flight Support Group's net sales were $230.3 million in the second quarter of fiscal 21, as compared to $252 million in the second quarter of fiscal 20. The net sales decrease in the first six months and second quarter of fiscal 21 is principally organic and reflects lower demand for the majority of our commercial aerospace products and services, resulting from the significant decline in global commercial air travel attributable to the pandemic. The flight support group's operating income was $61.3 million in the first six months of fiscal 21, as compared to $109.6 million in the first six months of fiscal 20. The operating income decrease in the first six months of fiscal 21 principally reflects the previously mentioned lower net sales, as well as a lower gross profit margin, higher performance-based compensation expense, and the impact from lost fixed cost deficiencies stemming from the pandemic. The flight support group's operating income was $35.5 million in the second quarter of fiscal 21 as compared to $47.5 million in the second quarter of fiscal 20. The operating income decrease in the second quarter of fiscal 21 principally reflects higher performance-based compensation expense directly resulting from the strong improvement in operations during the past three consecutive quarters. The Flight Support Group's operating margin was 14.3% in the first six months of fiscal 21, as compared to 19.8% in the first six months of fiscal 20. The operating margin decrease in the first six months of fiscal 21 principally reflects an increase in SG&A expenses as a percentage of net sales, mainly from the previously mentioned higher performance-based compensation expense and lost fixed cost efficiencies in the lower gross profit margin. The flight support group's operating margin was 15.4% in the second quarter of fiscal 21 as compared to 18.9% in the second quarter of fiscal 20. The operating margin decrease in the second quarter of fiscal 21 principally reflects the previously mentioned higher performance-based compensation expense. Now, I would like to introduce Victor Mendelson, co-president of HEICO and president of HEICO's Electronic Technologies Group, to discuss the results of the Electronic Technologies Group.