Heico Corporation

Welcome to the HICO Corporation fourth quarter and full year fiscal 2022 financial results call. My name is Samara and I'll be today's operator. Certain statements in today's call will constitute forward-looking statements which are subject to risks, uncertainties, and contingencies. HICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including, but not limited to, the COVID-19 pandemic, HICO's 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 costs 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 effects of inflation within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries. which could negatively impact our costs and revenues, and defense funding 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-K, Form 10-Q, and Form 8-K. 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 applicable law. I now turn the call over to Lawrence Mendelson, HICO's chairman and chief executive officer. Please go ahead.

Thank you, and good morning to everyone on the call. We thank you for joining us, and we welcome you to the HICO fourth quarter fiscal 22 earnings announcement teleconference. I'm Larry Mendelson, Chairman and CEO of Heiko Corporation, and I am joined here this morning by Eric Mendelson, Heiko's Co-President and President of Heiko's Flight Support Group, Victor Mendelson, Heiko's Co-President and President of Heiko's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and CFO. Today, my comments will address our consolidated fiscal 2022 fourth quarter results, acquisitions, and accomplishments, followed by a presentation of the segment results from Eric and Victor Mendelson, HICO's co-presidents. Now, before reviewing our record operating results, I would like to take a moment to thank all of HICO's exceptional team members for delivering another strong quarter. Your continued focus on exceeding customer expectations and operational excellence has translated into outstanding results for our shareholders. I'm encouraged by the steady improvement in our businesses during fiscal 22, and I am very optimistic that this trend will continue into fiscal 23. Summarizing the highlights of our fourth quarter, fiscal 22 results, consolidated fourth quarter fiscal year 22 net sales and operating income represents record results for HICO. And that was driven principally by record results within the flight support group, mainly arising from the continued rebound in demand for our commercial aerospace products and services. In addition, This marks the ninth consecutive quarter of sequential growth in net sales and operating income for the flight support group. Consolidated operating income and net sales in the fourth quarter of fiscal 22 improved 27 percent and 20 percent, respectively, as compared to the fourth quarter of fiscal 21. These results mainly reflect 11 percent quarterly consolidated organic net sales growth and the favorable impact from our fiscal 22 and 21 acquisitions. Consolidated operating margin improved to 24 percent in the fourth quarter of fiscal 22, and that was up from 22.6% in the fourth quarter of fiscal 21. Consolidated net income increased 13% to $97.2 million or $0.70 per diluted share in the fourth quarter of fiscal 22, and that was up from 86.1 million or 62 cents per diluted share in the fourth quarter of fiscal 21. HICO's effective tax rate was 23 percent in the fourth quarter of fiscal 22 as compared to 18.3 percent in the fourth quarter of fiscal 21. The increase in the effective tax rate for the fourth quarter of fiscal 22 principally reflects a 7.6% unfavorable impact from tax-exempt unrealized losses in the cash surrender values of life insurance policies related to the HICO Leadership Compensation Plan, and that was recognized in the fourth quarter of fiscal 22 as compared to the tax exempt unrealized gains recognized in the fourth quarter of 21. Later on in this call, if anyone has questions about the detail, this is a complicated matter. Carlos Macau is here and he will be able to explain that to you. Truthfully, it has no impact on our real operations. Our recent activity in acquisitions, in September 22, our ETG group completed the acquisition of Trad Tests and Radiation, located in La Beige, France. And Trad is a leader in the highly specialized field of radiation engineering. And their services and products are used primarily in space, nuclear, and medical fields. In September 22, our ETG group completed the acquisition of Ironwood Electronics, located in Eagan, Minnesota. And Ironwood is a leading designer and manufacturer of high-performance test sockets and adapters for both engineering and production use of semiconductor devices. As previously reported, our ETG group entered into a purchase agreement to acquire approximately 95% of Accelia International, which is headquartered in Paris, France. Accelia is a global leader in the design, manufacture, and sale of high reliability, complex, passive electronic components, and rotary joint assemblies for mostly aerospace and defense applications. The transactions closing, which remain subject to government approval and customary closing conditions, is still expected to occur in the first quarter of fiscal 23 and would be Heiko's largest ever acquisition in terms of purchase price and revenues. These acquisitions, all of them, are expected to be accretive to HICO's earnings per share within a year of the transaction's 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 fourth quarter results of the Flight Support Group. Eric.

Thank you very much. The flight support group's net sales increased 33% to a record $346 million in the fourth quarter of fiscal 22, up from $260.4 million in the fourth quarter of fiscal 21. The net sales increase in the fourth quarter of fiscal 22 reflects strong 22% organic growth, as well as the impact from our profitable fiscal 2021. 22, and 21 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 fourth quarter of fiscal 21. The flight support group's operating income increased 60 percent to a record $77.8 million in the fourth quarter of fiscal 22, up from $48.6 million in the fourth quarter of fiscal 21. The operating income increase in the fourth quarter fiscal 22 principally reflects the previously mentioned net sales growth and improved gross profit margin, mainly from increased sales within our specialty products, and aftermarket replacement parts product lines, as well as efficiencies realized from the higher net sales volume. The flight support group's operating margin improved to a record 22.5 percent in the fourth quarter of fiscal 22, up from 18.7 percent in the fourth quarter of fiscal 21. The operating margin increase in the fourth quarter of fiscal 22 principally reflects decreased SG&A expenses as a percentage of net sales, mainly reflecting the previously mentioned efficiencies as well as the previously mentioned improved gross profit margin. Now I would like to introduce Victor Mendelson, co-president of Heiko and president of Heiko's Electronic Technologies Group, to discuss the fourth quarter results of the Electronic Technologies Group.