Heico Corporation

Welcome to the HICO Corporation second quarter and full-year fiscal 2022 financial results call. My name is Patricia and I will be the conference operator for today's call. Certain statements in today's call will constitute forward-looking statements which are subject to risk, uncertainties, and contingencies. HICO's actual results may differ materially from those expressed or implied by those forward-looking statements as a result of factors including the severity, magnitude, and duration of the pandemic, high cost liquidity and the amount and timing of cash generation, lower commercial air travel caused by the 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 cost to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and or foreign customers or competition from existing and new competitors, which could reduce our sales, our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth, product development or manufacturing difficulties which could increase our product development and manufacturing costs and delay sales, 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 including the effect of inflation within and outside the aviation, defense, space, medical, telecommunication, and electronics industries, which could negatively impact our cost and revenue, and the PEN spending 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 Security and Exchange Commission, including but not limited to filings on Form 10-K and Form 10Q and Form 8K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by the applicable law. As we begin the call, now I turn the call over to Lawrence Mendelson, High Coast Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you very much, and good morning to everyone on this call. Thank you for joining us, and we welcome you to this HICO second quarter fiscal 22 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 Mendelsohn, HICO's Co-President and President of HICO's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and CFO. Before reviewing our operating results in detail, I would like to take a few minutes to thank all of HICO's talented team members for delivering another outstanding quarter. Your dedication to our customers and operational excellence has translated into superior results for the shareholders. I am truly delighted by the positive trends in our aerospace business, and I am optimistic that these favorable trends will continue during the remainder of fiscal 22. I will summarize the highlights of our second quarter fiscal 22 record results. Consolidated second quarter and first six months of fiscal 22 Operating income represents record results for HICO, and that was driven principally by record operating income within the flight support group, mainly arising from a continued rebound in demand for our commercial aerospace products and services. Consolidated operating income and net sales in the second quarter of fiscal 22 improved 27% and 15% respectively as compared to the second quarter of fiscal 21. These results mainly reflect a 9% quarterly consolidated organic net sales growth and the favorable impact from our fiscal 21 and 22 acquisitions. Consolidated operating margin. improved to 22.8% in the second quarter of fiscal 22, and that was up from 20.7% in the second quarter of fiscal 21. And it improved to 21.5% in the first six months of fiscal 22, and that was up from 20% in the first six months of fiscal 21. The Flight Support Group reported quarterly increases of 87 and 33 percent in operating income and net sales, respectively, as compared to the second quarter of fiscal 2022. These results principally reflect strong 31 percent quarterly organic growth for commercial aerospace parts and services. In addition, this marks the seventh consecutive quarter of sequential growth in net sales and operating income at the Flight Support Group. Our total debt to shareholders' equity was 11% as of April 30, 22, and that compared to 10.3% as of October 31, 21. Our net debt, which is total debt less cash and cash equivalent, of $148.6 million as of April 30, 2022, compared to shareholders' equity ratio was 6.1% as of April 30, 2022, and that compared to 5.6% as of October 31, 2021. Our net debt to EBITDA ratio was 0.1%. 2.8 times and 0.26 times as of April 30, 2022, and October 31, 2021. We have no significant debt maturities until fiscal 25, and we plan to utilize our financial strength and flexibility to aggressively pursue high-quality acquisitions of various sizes in order to accelerate growth and maximize shareholder returns. I'd like to discuss our recent acquisition activity, which in March 22, we acquired all of the stock of Flight Microwave Corporation, which is a designer and manufacturer of custom high-power filters and filter assemblies used in space and defense applications. In March 22, we successfully completed the previously announced agreement to acquire 74 percent of the membership interests of Pioneer Industries, and Pioneer is a specialty distributor of spares for military, aviation, marine, and ground platforms. The remaining 26 percent interest continues to be owned by certain members of Pioneer's management team. We expect both of these acquisitions to be accretive to earnings within the first 12 months following closing. At this time, I would 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 increased 33% to $306.3 million in the second quarter of fiscal 22, up from $230.3 million in the second quarter of fiscal 21. The flight support group's net sales increased 35% to $579 million in the first six months of fiscal 22, up from $429.6 million in the first months in the first six months of fiscal 21. The net sales increase in the second quarter in the first six months of fiscal 22 reflects strong organic growth of 23% and 26%, respectively, as well as the impact from our profitable fiscal 21 and 22 acquisitions. The organic growth mainly reflects increased demand for the majority of our commercial aerospace products and services resulting from continued recovery in global commercial air travel as compared to the second quarter and first six months of fiscal 21. The flight support group's operating income increased 87% to a record $66.2 million in the second quarter of fiscal 22, up from $35.5 million in the second quarter of fiscal 21. The flight support group's operating income increased 93% to a record $118.6 million in the first six months of fiscal 22, up from $61.3 million in the first six months of fiscal 21. The operating income increase in the second quarter and first six months of fiscal 22 principally reflects an improved gross profit margin mainly from the previously mentioned higher net sales across all product lines and efficiencies realized from the higher net sales volume. By the way, just as an aside and not part of the scripted remarks, I have to say and congratulate the flight support team because, frankly, two years after COVID began and created such problems for this industry, I personally am just in awe of these results and the performance of our team. I don't think anybody expected that we would be back to record numbers within or two years after the COVID crisis happened. So I just cannot stress enough how outstanding I think these results are. The Vice Support Group's operating margin improved to 21.6% in the second quarter of fiscal 22. up from 15.4% in the second quarter of fiscal 21. The flight support group's operating margin improved to 20.5% in the first six months of fiscal 22, up from 14.3% in the first six months of fiscal 21. The operating margin increase in the second quarter and first six months of fiscal 22 principally reflects the previously mentioned improved gross profit margin, as well as a decrease in SG&A expenses as a percentage of net sales, mainly reflecting the previously mentioned efficiencies. Now I would like to introduce Victor Mendelson, co-president of Heiko and president of Heiko's Electronic Technologies Group, to discuss the results of the Electronic Technologies Group.