Heico Corporation

Welcome to the HICO Corporation first quarter 2025 financial results call. My name is Samara and I will be your operator for today's call. 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, HICO's liquidity and the amount and timing of cash generation, lower commercial air travel, 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 cost to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space, or homeland security spending by US 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. Cybersecurity events or other disruptions of our information technology systems could adversely affect our business. 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 and 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, and good morning to everyone on the call. We thank you for joining us, and we welcome you to this HICO first quarter fiscal 25 earnings announcement teleconference. I'm Larry Mendelson, chairman and CEO of HICO Corporation. I'm joined here this morning by Eric Mendelson and Victor Mendelson, HICO's co-presidents, and Carlos Macal, our Executive Vice President and CFO. Before highlighting our exceptional first quarter of fiscal 25 results, I would like to personally thank Heiko's incredible team members for their hard work, dedication, and commitment to excellence. Their tireless efforts to exceed customer expectations and deliver outstanding results with unique efficiency are the driving force behind our remarkable success. Your efforts and accomplishments continue to shape Heiko's bright future. We're very proud of our first quarter results. which reflect consolidated margin expansion, strong cash flows, and record net sales in both of our segments. I remain very bullish on Heiko's ability to win new opportunities during fiscal 25. As we look ahead to the remainder of fiscal 25, our team is filled with great optimism. The current US administration's pro-business agenda aligns well with our long-term goals, providing an environment for innovation, investment, and expansion. With our strategic focus on key markets like defense, space, and commercial aviation, and the exceptional talent and drive of our team members, Heiko is uniquely positioned to capitalize on new opportunities and sustain our momentum across diverse industries. Summarizing our first quarter fiscal 25 results, consolidated operating income and net sales in the first quarter of fiscal 25 represent record results for HICO, improving by 26% and 15% respectively as compared to the first quarter of fiscal 24. Consolidated net income increased 46% to a record $168 million or $1.20 per diluted share in the first quarter of fiscal 25. And that was up from 114.7 million or 82 cents per diluted share in the first quarter of fiscal 24. Net income attributable HICO in the first quarter of fiscal 25 and 24 were both favorably impacted by a discrete income tax benefit from stock option exercises. The tax benefit in the first quarter of fiscal 25 net of non-controlling interest was $26.5 million, or 19 cents per diluted share. And that was up from 13.3 million or 10 cents per diluted share in the first quarter of fiscal 24. Excluding the impact of this tax benefit in both periods, earnings per share increased 29 cents per diluted share or 40 percent up. Flight Support Group set all-time quarterly operating income and net sales records in the first quarter of fiscal 25, improving 22 percent and 15 percent, respectively, over the first quarter of fiscal 24. The increases principally reflect strong 13 percent organic net sales growth, mainly attributable to increased demand for the flight support groups, aftermarket replacement parts, and repair and overhaul parts and services product lines, and the impact from our profitable fiscal 24 and 25 acquisitions. The electronic technologies group operating income and net sales improved 38% and 16%, respectively, over the first quarter of fiscal 24. These increases principally reflect strong 11% net sales growth, organic sales growth, mainly attributable to increased defense space and aerospace product deliveries and the positive impact from our fiscal 24 and 25 acquisitions. Cash flow provided by operating activities increased 82 percent to $203 million in the first quarter of fiscal 25, and that was up from $111.7 million in the first quarter of fiscal 24. We continue to forecast strong cash flow from operations for the entire fiscal 25. Consolidated EBITDA increased 22% to $273.9 million in the first quarter of fiscal 25, and that was up from $224.4 million in the first quarter of fiscal 24. Our net debt to EBITDA ratio was 2.08 times as of January 31, 25. and that compared to 2.06 times as of October 31, 24. Acquisition opportunities and M&A diligence efforts within both of our operating segments remain highly active, reflecting a robust pipeline of potential targets. We consistently seek complementary acquisitions that meet our strategic and financial goals. This is guided by a disciplined approach that we pursue acquisitions that make financial sense and are accretive to our earnings while enhancing long-term shareholder value. In January 25, We paid our regular semiannual cash dividend of 11 cents per share, which was our 93rd consecutive semiannual cash dividend since 1979. We were also very busy with acquisitions, having completed several key acquisitions in fiscal 25's first quarter. In November, our Accelia subsidiary acquired 70% of SVM Limited, a designer and manufacturer of high-performance electronic passive components and subsystems, primarily serving the healthcare and industrial end markets. In December, we secured an exclusive license and purchased key assets from Honeywell International in order to support the Boeing 777 Ames and the 737 NGP-8E-7 via product lines. In January, we acquired a 90 percent interest in Millennium International, a business jet avionics repair company which complements HICO's growing avionics repair capabilities. All of these acquisitions were funded principally using proceeds from our revolving credit facility and cash provided by our operating activities. In addition, we expect each of these acquisitions to be accretive to our earnings within the year following the acquisition. 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 first quarter results of the Flight Support Group.

Eric. Thank you very much. The flight support group's net sales increased 15% to a record $713.2 million in the first quarter of fiscal 25, up from $618.7 million in the first quarter of fiscal 24. The net sales increase in the first quarter of fiscal 25 reflects strong 13% organic growth in the impact from our profitable fiscal 24 and 25 acquisitions. The organic net sales growth mainly reflects increased demand for our aftermarket replacement parts and repair and overhaul parts and services. Wencor continues to exceed our expectations, and this was an excellent acquisition for Heiko. Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs, which has translated into excellent growth opportunities and success for both our legacy businesses and Wincor. We continue to operate Wincor as a standalone business operation, I have defined our strategy as cooperation, cash, capabilities, and consistency without consolidation. The results have proven this to be the absolutely correct strategy. As I've mentioned before, we continue to make good progress working together and serving our customers in a combined seamless fashion. Some examples of how we are working together include, one, utilization of all Heiko and Wencore PMAs and DERs at all repair stations. Two, commercial and defense aftermarket sales cooperation. Three, Wencore e-commerce platform lists all Heiko non-competitive PMAs. Four, Wencore is utilizing Heiko's manufacturing base. to quote and build many new products. Five, engineering and regulatory cooperation. Six, sharing our best in class vendors. And seven, our back office synergies such as payroll, insurance, retirement benefit plans, cyber security, and export compliance that will help offset additional regulatory compliance costs such as SOX and our FAA ODA. Flight Support Group's defense sales continue to grow, presenting a strong opportunity, especially as the current U.S. Presidential Administration prioritizes defense in cost efficiency. As one example, we are making progress in setting the path to selling aircraft replacement parts to DOD agencies, building upon our efforts over the past two years and, frankly, the decade before. While we don't expect this to contribute meaningfully to our 2025 revenues, we are very excited about the significant savings the US government taxpayers can reap from buying our parts, just as so many commercial airlines do around the world. For competitive reasons, I can't get into further detail on these efforts, but I can say that serious work is going into making this happen. Our missile defense components business is experiencing significant growth as well, driven by increasing demand from the U.S. and its allies. With a substantial backlog of defense missile orders and ongoing shortages, we anticipate meaningful expansion from this firm pipeline, reinforcing our commitment to delivering cost-effective solutions without compromising quality. The flight support group's operating income increased 22 percent to a record $166.1 million in the first quarter of fiscal 25, up from $136.1 million in the first quarter of fiscal 24. The operating income increase principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth, and an improved gross profit margin. The improved gross profit margin principally reflects the previously mentioned higher aftermarket replacement parts net sales. The flight support group's operating margin increased to 23.3% in the first quarter of fiscal 25, up from 22% in the first quarter of fiscal 24. The increased operating margin principally reflects the previously mentioned lower SG&A expenses as a percentage of net sales and improved gross profit margin, mainly reflecting efficiencies realized from the previously mentioned net sales growth. Acquisition-related intangible amortization expense consumed approximately 270 basis points of our operating margin in the first quarter of fiscal 25. The FSG's cash margin before amortization, or what we refer to as EBITDA, was approximately 26%, which has been consistently excellent and is 120 basis points higher than the comparable flight support group cash margin of 24.8% in the first quarter of fiscal 24. I am very happy with the continued expansion of our cash margin and believe our efficient, decentralized operating structure has permitted us to expand these margins as we simultaneously delight our customers with fair prices coupled with undisputed industry-leading quality in turnaround times. This is an incredible accomplishment, which is truly unique in our industry. Now, I would like to introduce Victor Mendelson, co-president of Heiko, and president of Heiko's Electronic Technologies Group, to discuss the first quarter results of the Electronic Technologies Group.