Heico Corporation

Welcome to the HICO Corporation fourth quarter year-end 2023 financial results call. My name is Samara and I'll be today's operator. Certain statements in this conference 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. Factors that could cause such differences include the severity, magnitude, and duration of public health threats, such as the COVID-19 pandemic or health emergencies, HICO's liquidity and the amount and timing of cash generation, lower commercial air travel caused by health emergencies and their aftermath, airline fleet changes or airline purchasing decisions, which could cause lower demand for 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, including obtaining any applicable domestic and or foreign governmental approvals, and achieve operating synergies from acquired businesses, customer credit risk, interest, foreign currency exchange, and income tax rates, and 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. 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 statement, 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.

Thank you, Samara. Good morning to everyone on this call, and we thank you very much for joining us today. and we welcome you to the HICO fourth quarter fiscal 23 earnings announcement teleconference. I'm Larry Mendelsohn, chairman and CEO of HICO Corporation, and I am 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 moment to thank all of HICO's talented team members for delivering another strong quarter and strong year. Your continued focus on exceeding customer expectations and operational excellence has translated into superb results for the shareholders. I would also like to congratulate and thank the WinCore team for a terrific quarter within the Heiko family. We could not be more pleased with their performance and their results. I personally continue to be very optimistic about the future for Heiko. And as a matter of fact, I have never been more optimistic about Heiko's future than I am today. I will now summarize the highlights of our fourth quarter fiscal 23 record results. Consolidated fourth quarter fiscal 23 operating income and net sales represent record results for HICO, driven principally by record net sales within the flight support group and electronic technologies group, mainly arising from continued strong demand for our commercial aerospace products and services and the contributions from our fiscal 23 and 22 acquisitions. Consolidated operating income and net sales in the fourth quarter of fiscal 23 improved by 29 and 54 percent, respectively, as compared to the fourth quarter of fiscal 22. These results mainly reflect 14 percent quarterly consolidated organic net sales growth, as well as the impact from the acquisitions. Consolidated net income increased 6 percent to $103.4 million, or 74 cents per diluted share, in the fourth quarter of fiscal 23. and that was up from 97.2 million or 70 cents per diluted share in the fourth quarter of fiscal 22. In connection with the WNCOR acquisition, HICO incurred acquisition costs during the fourth quarter of fiscal 23, and they decreased net income attributable to HICO by approximately $13.6 million or $0.10 per diluted share. Our consolidated operating margins before the wind core related non-recurring deal expenses remain strong and are consistent with the expectations we have previously communicated. These margins are extremely healthy, even though our product mix this year has meant lower overall margins than in prior year. In the fourth quarter of fiscal 23, excluding the Wencore acquisition cost, consolidated net income increased 20% to $117 million, or $0.84 per diluted share. Our net debt to EBITDA ratio was 3.04 times as of October 31, 23, and that compared to times as of October 31-22. The net debt to EBITDA ratio increase in the fiscal year ending October 31-23 principally reflects our successful offering of $1.2 billion in senior unsecured notes and increased borrowings on our revolving credit facilities. We used the net proceeds from the sale of the notes and additional borrowings on our revolving credit facility to fund the acquisition of Wencor. Cash flow provided by operating activities improved to $148.4 million in the fourth quarter of fiscal 23, and that was up from $143.9 million in the fourth quarter of fiscal 22. Cash flow provided by operating activities in the fourth quarter of fiscal 23 reflects an increase in working capital principally driven by an increase in inventories to support our increased consolidated backlog. The continued excellent cash flow generation by HICO permitted our board of directors to recently declare a $0.10 per share semiannual dividend, which represents our 91st consecutive dividend payment. 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.

Thank you very much. I would like to take a moment to recognize and welcome the WENCOR team members to the HICO family. The WENCOR team is a perfect and highly complimentary fit with the HICO culture, and I'm extremely optimistic about the future of WENCOR's contributions to the flight support group's future. I must say that over the last number of months, I've gotten the chance to visit most of the WENCOR facilities. And I've been incredibly impressed with the caliber of team members that Wencor has. We had very high expectations for them prior to closing the acquisition, but they continue to amaze everyone and really perform outstandingly well. It really is a privilege and an honor to have gotten to know these people. And also, I'd like to thank the HICO team members for being so welcoming to their new Wencor brothers and sisters and bringing them into the fold. Because as a team, we can accomplish so much more than we can individually. The HICO team members have been phenomenally excited about the Wencor acquisitions. We've done about 100 acquisitions, but I can say that this one really has generated incredible enthusiasm and excitement. And I am just absolutely thrilled honored to work with both the HICO and the OneCorp team members. We've got a phenomenal group, and I think the results really speak for themselves with a lot more to come. So again, thank you very much to all of our HICO flight support team members for an incredible performance in the fourth quarter and full 2023. On to the results. The flight support group's net sales increased 74%. to a record $601.7 million in the fourth quarter of fiscal 23, up from $346 million in the fourth quarter of fiscal 22. The net sales increase in the fourth quarter of fiscal 23 reflects $185.7 million from Wincor and strong organic growth of 20%. The flight support group's operating income increased 47% to a record $114.6 million in the fourth quarter of fiscal 23, up from $77.8 million in the fourth quarter of fiscal 22. WENCOR's operating income in the fourth quarter of fiscal 23 was $29.3 million. The operating income increase principally reflects the previously mentioned net sales growth and improved gross profit margin, partially offset by $12.7 million of Wencore acquisition costs and $11.8 million of Wencore's intangible asset amortization expense and higher performance-based compensation expense. The improved gross profit margin principally reflects higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product lines. The Flight Support Group's operating margin was 19% in the fourth quarter of fiscal 23, as compared to 22.5% in the fourth quarter of fiscal 22. The operating margin decrease in the fourth quarter of fiscal 23 principally reflects the previously mentioned Wincor acquisition costs and intangible asset amortization expense. Excluding the Wincor acquisition costs and intangible asset amortization expense, the Flight Support Group's operating income increased 79% to $139.1 million in the fourth quarter of fiscal 23, and the operating margin was 23.1 percent. 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.