Heico Corporation

Welcome to the HICO Corporation third 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 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. Cyber security 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 Eric Mendelson, HICO's Co-Chief Executive Officer.

Thank you, Samara, and good morning to everyone on this call. Thank you for joining us, and we welcome you to HICO's third quarter fiscal 25 earnings announcement teleconference. I'm Eric Mendelsohn, HICO's co-CEO. I am joined here this morning by Victor Mendelsohn, HICO's co-CEO, and Carlos Macau, our executive vice president and CFO. Before highlighting our third quarter of fiscal 25 record-setting results, I start this call by thanking all of HICO's team members for their dedication and focus on delivering another outstanding quarter. We continue to experience high growth rates across the majority of our subsidiaries and are humbled by the hard work and commitment of our team members that they bring every day to deliver these excellent quarterly results. Our customers require seamless execution and demand excellence in everything we do. Our people are the only reason we continue to win in the marketplace and generate significant shareholder value. All of our shareholders should thank our team members for everything they do for Heiko and our shareholders. Our record third quarter results reflect robust double digit organic growth in our core businesses further enhanced by the momentum from our disciplined acquisition strategy. On behalf of the board and our executive management team, thank you for another record-breaking quarter. As we look ahead, we see significant opportunities supported by a favorable pro-business environment that encourages innovation, investment, and expansion. Our laser focus on growth within the commercial aviation, defense, and space markets, combined with the exceptional talent of our team members, gives me confidence that HEICO is well positioned to sustain strong momentum and capture additional market share gains across our diverse markets. We remain very optimistic about HEICO's future. In summarizing our third quarter of fiscal 25 record results, we note that consolidated net income increased 30% to a record $177.3 million or $1.26 per diluted share in the third quarter of fiscal 25, up from $136.6 million or $0.97 per diluted share in the third quarter of fiscal 24. This is quite an achievement of which we are very, very proud. Consolidated operating income and net sales for the third quarter of fiscal 25 represent record results for HICO, increasing 22% and 16% respectively compared to the third quarter of 24. The Flight Support Group set an all-time quarterly operating income and net sales records in the third quarter of fiscal 25, improving 29% and 18% respectively over the third quarter of fiscal 24. The increases principally reflect strong 13% organic growth from increased demand across all of its product lines. and the impact from our profitable fiscal 25 and 24 acquisitions. The Electronic Technologies Group set an all-time quarterly net sales record in the third quarter of fiscal 25, improving 10% over the third quarter of fiscal 24. This increase principally reflects improved demand for the majority of its products, including double digit organic net sales growth of other electronics and space products. Cash flow provided by operating activities increased 8% to $231.2 million in the third quarter of fiscal 25, up from $214 million in the third quarter of fiscal 24. For the third quarter of fiscal 25, Cash flow provided by operating activities represents 130% of net income. For over 36 years, a core tenet of HICO's unique business model has been to fund our organic growth with cash generated by operations and not incur debt to grow organically. This doesn't happen by accident. Our operations are painstakingly designed and managed to generate excess cash that we use to make accretive acquisitions, thereby compounding our growth. I'm proud to report that cash generation remains exceptionally strong at HICO. Consolidated EBITDA increased 21% to $316.4 million in the third quarter of fiscal 25. up from $261.4 million in the third quarter of fiscal 24. Our net debt to EBITDA ratio was 1.9 times as of July 31, 2025, down from 2.06 times as of October 31, 2024. I would like to highlight that our liquidity improved significantly even after deploying $630 million on acquisitions during the past nine months. We are very pleased with Heiko's strong cash generation, which drives our ability to de-lever quickly to support future acquisition opportunities. In July 25, we paid our 94th consecutive semi-annual cash dividend since 1979 at the rate of 12 cents per share, representing a 9% increase over the prior dividend paid in January 2025. We continue to be very busy with acquisitions and completed our fifth acquisition of fiscal 25 in the third quarter. In July, our electronic technologies group acquired 100% of the stock of Gables Engineering. Gables designs and manufactures advanced solutions for aerospace platforms, including cockpit displays and other avionics components such as navigation, audio, surveillance, and communication panels for a wide range of aircraft. Gables is the third largest acquisition in HICO's history, and we expect Gables to be accretive to earnings within the year following the acquisition. Finally, we take a moment to remember Frank Schwitter, a member of our board of directors who passed away recently. Frank was a dear friend and CPA who served as a board member since 2006. He was a valued member of the Heiko family with his expertise in financial accounting and reporting having been developed over many decades serving as a partner in the national office of Arthur Anderson. We share our thoughts and prayers with his family and thank them for the many years of service and friendship he provided to our board. He will be greatly missed. I now turn the call over to Victor Mendelson, Heiko's co-CEO to discuss the third quarter results of our flight support and electronic technologies groups in greater detail.

Thank you, Eric. As I discuss the operating results of our two segments, I join you in recognizing the extraordinary contributions of HICO's team members. Your talent, determination, and innovative spirit have turned challenging objectives into real success. On behalf of our shareholders, thank you. for the energy and collaboration that not only drive our performance, but also make these accomplishments especially rewarding. The Flight Support Group's net sales increased 18% to a record $802.7 million in the third quarter of fiscal 25, up from $681.6 million in the third quarter of fiscal 24. The net sales increase in the third quarter of fiscal 25 reflects strong organic growth of 13%, and the impact from our profitable fiscal 25 and 24 acquisitions. The organic net sales growth reflects increased demand across all of our product lines. The WENCOR and Legacy HICO operations continue to exceed our expectations, and obviously this was an excellent combination which was completed around two years ago. Our customers continue to find great value. and our larger aftermarket product offerings for the aerospace parts and component repair and overall needs, which has also translated into excellent growth and opportunities and success for HICO. The flight support group's defense business continues to present an excellent opportunity, especially as the current U.S. presidential administration prioritizes defense and cost efficiency. HICO is well-positioned to support these efforts, by providing lower-cost alternative aircraft replacement parts, helping the government and taxpayers save money while expanding our market reach. Our missile defense manufacturing business is experiencing significant growth driven by increased demand of both the U.S. and our allies. With a substantial backlog of missile defense orders and ongoing shortages, we anticipate meaningful expansion from this pipeline reinforcing our commitment to delivering cost-effective solutions with industry-best quality. The Flight Support Group's operating income increased 29% to a record $198.3 million in the third quarter of fiscal 25, up from $153.6 million in the third quarter of fiscal 24. The operating income increase principally reflects the previously mentioned net sales growth and improved gross profit margin and SG&A expense efficiencies realized from the net sales growth. The improved gross profit margin principally reflects higher net sales within our repair and overhaul parts and services and specialty product lines. The flight support group's operating margin improved to 24.7% in the third quarter fiscal 25, up from 22.5% in the third quarter fiscal 24. The operating margin increase principally reflects the previously mentioned improved gross profit margin and an impact from a decrease in SG&A expenses as a percentage of net sales, mainly reflecting the previously mentioned SG&A expense efficiencies. Given that acquisition-related and tangible amortization expense consumed approximately 200 basis points of our operating margin in the third quarter of fiscal 25, the FSG's cash margins before amortization or EBIT A was approximately 27.3%, which has been consistently excellent and is 210 basis points higher than the comparable FSG cash margin of 25.2% in the third quarter fiscal 24. And we know that we run the operations internally and evaluate our businesses based on EBIT A, which to us, is a real cash number, not one that just takes account for a made-up amortization number required by accounting regulations. I'm very happy with the continued expansion of our cash margin, and we believe our efficient and decentralized operating structure has permitted us to expand these margins as we simultaneously delight our customers with cost savings and lightning-quick turnaround. For the electronic technologies group, our net sales increased 10% to a record $355.9 million in the third quarter of fiscal 25, up from $322.1 million in the third quarter of fiscal 24. The net sales increase reflects strong organic growth of 7% and the impact from our fiscal 25 and 24 acquisitions. The organic net sales growth is mainly attributable to increase demand for our other electronics, defense, and space products. The ETG's defense organic net sales increased by over 6% during the third quarter of fiscal 25 and are anticipated to continue steady growth during the remainder of the fiscal year as we, again, have significant order volume and a record backlog. The ETG's other electronics organic net sales increased 16% during the quarter, continuing the trend from the previous quarter increase in organic growth after following multiple quarters of lower demand due in part to inventory destocking and our customers for high-end industrial and electronic components. We're optimistic for continued growth going forward. The Electronic Technologies Group's operating income increased 7% to $81 million in the third quarter of fiscal 25, up from $75.8 million in the third quarter of fiscal 24. The operating income increase principally reflects the previously mentioned net sales growth, partially offset by an increase in performance-based compensation expenses. The Electronic Technologies Group's operating margin was 22.8%, in the third quarter fiscal 25 as compared to 23.5% in the third quarter fiscal 24. The operating margin was sequentially consistent with the second quarter fiscal 25 as both periods had a similar net sales mix and growth. The lower operating margin compared to the third quarter fiscal 24 principally reflects an increase in SG&A expenses as a percentage of net sales, mainly driven by higher performance-based compensation expenses. Very importantly, as we talked about with the flight support group, before acquisition-related intangibles amortization expense, our operating margin was 26.6%, as intangibles consumed around 380 basis points of our operating margin. Again, this is how we judge our businesses, as that most closely correlates to cash. On a true operating basis, these are excellent margins, and we are very, very pleased with them. I turn the call back over to Eric Memelson.