Heico Corporation

Welcome to the HICO Corporation fourth 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, among others, the severity, magnitude, and duration of public health threats, such as the COVID-19 pandemic, our 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 in 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. Cybersecurity events or other disruptions of our information technology systems could adversely affect our business. And our ability to make acquisitions, including obtaining any applicable domestic and or foreign governmental approvals and achieve operating synergies from required 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 10Q and Form 8K. 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 Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer. Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer. Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer. Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer. Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer. Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer. Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer.

Victor Mendelson, HICO's Co-Chairman and Co-Chief Executive Officer. Victor Mendelson, HICO's Co-Chair Thank you for joining us, and we welcome you to HICO's fourth quarter fiscal 25 earnings announcement teleconference. As you heard, I'm Victor Mendelson, HICO's co-chairman and co-CEO. I am joined here this morning by Eric Mendelson, HICO's other co-chairman and co-CEO, and Carlos Macal, our executive vice president and CFO. As we start this call, Eric and I would like to take a moment to remember our father and Larry Mendelson, whom you all know was Long High Coast Chairman and CEO. As sons, we were beyond blessed to have a unique and loving father who instilled in us from our earliest days values and life methods based on fairness, on excellence, on quality, and as our father used to say, just doing the right thing. Of course, these values and life methods apply in business, too. And as a businessman, he knew how much these matter, along with a fixation on real earnings. That is to say, cash flow. Many of you on this call will remember his unrelenting emphasis on cash flow, not artificial gap metrics. Although he always lived by those gap metrics and enforced them, he knew what really mattered. Eric and I were also blessed to have been partners with our father from well before the three of us became Heiko's largest shareholders and mounted our effort to take over management. By the way, in a few weeks, we'll mark the 36th anniversary of our taking over here. Working with him to build Heiko day in and day out was a pleasure and an honor that few get to experience. And I can say that through his example, not only were Eric and I imbued with these values these life methods and his business approach. But more important, all of Heiko. All of Heiko became so imbued. That was his succession plan and was nearly always, as was nearly always the case with our father. It worked perfectly. Our father was profoundly proud of Heiko. He was also one of the greatest optimists we ever knew. And in his closing days, even after nearly 36 remarkable Heiko years, he was more optimistic than ever about this company's prospects. I can tell you that me and the Heiko team share that optimism. I can also say how grateful we are for all that we learned from him. Thank you for indulging us for a few moments there. Before turning to our fourth quarter fiscal 25 record-setting results, which you know kept another exceptional year for Heiko, we recognize our team members' extraordinary efforts. Our team members' dedication to our customers and our endeavors across the organization were the reason for our very strong results this quarter and this year, leaving us quite optimistic about Heiko's future. We and Heiko's board thank you for all you have done in 2025. and before and we look forward to an even more prosperous 2026. So, taking a moment to summarize our record results during the fourth quarter of fiscal 25, we note first that consolidated net income increased 35% to a record $188.3 million or $1.33 per diluted share in the fourth quarter of fiscal 25. up from $139.7 million, or 99 cents, per diluted share in the fourth quarter fiscal 24. Consolidated operating income and net sales in the fourth quarter fiscal 25 represent record results for HICO, which improved by 28% and 19% respectively as compared to the fourth quarter fiscal 24. The flight support group said all time. Quarterly net sales and operating income records in the fourth quarter of fiscal 25, improving 21% and 30% respectively over the fourth quarter of fiscal 24. The increases principally reflect strong 16% – strong would be an understatement, but 16% organic growth stemming from increased demand across all of the group's product lines, as well as the impact from our profitable fiscal 25 and 24 acquisitions. The Electronic Technologies Group also set all-time quarterly net sales and operating income records in the fourth quarter fiscal 25, improving 14% and 10% respectively over the fourth quarter fiscal 24. These increases principally reflect strong organic growth for most of the group's products and the impact from our profitable fiscal 25 and 24 acquisitions. Consolidated EBITDA increased 26% to $331.4 million in the fourth quarter fiscal 25, up from $264 million in the fourth quarter fiscal 24. And our net debt to EBITDA ratio improved to 1.6 as of October 31st, 25, down from 2.06 on October 31st, 24. Cash flow provided by operating activities increased 44%. to $295.3 million in the fourth quarter of fiscal 25, up from $205.6 million in the fourth quarter of fiscal 24. Yesterday, HICO's Board of Directors declared a semiannual $0.12 per share cash dividend on both classes of HICO stock payable in January 2026, representing our 95th consecutive dividend and reflecting the board's ongoing confidence in our company's strong cash flow generation. We completed five acquisitions in fiscal 25, three in the electronic technologies group and two in the flight support group, further enhancing our sales, our earnings, and our cash flow. Each of our flight support and electronic technologies groups recently entered into agreements to acquire two separate and unrelated businesses, one of which, Ethos, was just announced earlier this week. As of now, we anticipate both should close in the first quarter of calendar 26, though they are, of course, subject to customary closing conditions, including, among others, antitrust clearance and the sellers complying with typical representations and covenants. So, we can't be certain of actual timing or actual closing. We expect these acquisitions would be accreted to HICO's earnings within the year of each transaction's closing. I now turn the call over to Eric Mendelsohn to discuss our Flight Support and Electronic Technology Group's fourth quarter results in greater detail. Eric. Thank you, Victor. Before we turn to the results, I want to pause and recognize the remarkable performance of HICO's team members. What we are reporting today is the product of extraordinary talent, relentless execution, and a culture developed over decades that consistently turns ambitious objectives into real outcomes. Time and again, they have demonstrated the ability to rise to the challenges, adapt, and deliver at the highest level. Their commitment, collaboration, determination, and creative approach are the foundation of these results and make them especially rewarding. We are all sure that our dad is looking down on us today as we report these outstanding results and we closed our 36th year with Heiko. As Victor said so eloquently a few moments ago, we are both so grateful for all that we learned from our dad and from all the time that we had with him. Now moving on to the results. The flight support group's net sales increased 21% to a record $834.4 million in the fourth quarter of fiscal 25, up from $691.8 million in the fourth quarter of fiscal 24. The net sales increase reflects strong organic growth of 16% and the impact from our fiscal 24 and 25 acquisitions. The net sales growth reflects increased demand across all of our product lines. Hyco's operations continue to exceed our expectations, underscoring our highly successful combination with WinCorp. Customers increasingly recognize the value of our expanded aftermarket parts and repair and overhaul offerings, which has driven strong growth opportunities and continued success across the company. The flight support group's defense business remains a compelling opportunity, particularly as both the U.S. administration and our foreign allies emphasize defense readiness and cost efficiency. HEICO is extremely well positioned to support these priorities by delivering high-quality, lower-cost alternative aircraft parts that help reduce costs for the government and taxpayers while expanding our addressable markets. Our missile defense manufacturing business is also experiencing very significant growth, fueled by rising demand from the United States and our allies. We have substantial orders and backlogs to support the continued expansion of this business, and we are committed to providing cost-effective solutions in industry-leading quality to our U.S. military and our foreign allies. The Flight Support Group's operating income increased 30 percent to a record $201 million in the fourth quarter of fiscal 25, up from $154.5 million in the fourth quarter of fiscal 24. The operating income increase reflects the previously mentioned net sales growth, an improved profit margin, and SG&A expense efficiencies realized from the net sales growth. The improved profit margin principally reflects net sales growth within our repair and overhaul parts and services product line and a more favorable product mix within our specialty products product line. The VICE support group's operating margin improved to 24.1% in the fourth quarter of fiscal 25, up from 22.3% in the fourth quarter of fiscal 24. The increased operating margin principally reflects the previously mentioned improved gross profit margin. Since acquisition-related intangible amortization expense consumed approximately 250 basis points of our operating margin in the fourth quarter of fiscal 25, the flight support group's cash margin which is before amortization, or what we also call EBIT-A, was approximately 26.6%, which has been consistently excellent and is 160 basis points higher than the comparable flight support group cash margin of 25.0% in the fourth quarter of 24. As I have previously discussed, We are laser-focused on cash generation at each of our businesses. I am very happy with the continued expansion of our cash margins and believe the decentralized operating structure has permitted us to expand these margins while simultaneously delivering high-quality products and services to our customers at substantial cost savings with lightning-quick turnaround times. Now I will discuss the fourth quarter results of the electronic technologies group. The electronic technologies group's net sales increased 14% to a record $384.8 million in the fourth quarter of fiscal 25, up from $336.2 million in the fourth 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 increased demand for our other electronics, defense, aerospace, and space products. The electronic technology group's operating income increased 10% to a record $89.6 million in the fourth quarter of fiscal 25, up from $81.8 million in the fourth quarter of fiscal 24. The operating income increase principally reflects the previously mentioned net sales growth and an improved gross profit margin partially offset by higher SG&A expenses, mainly reflecting increased share-based compensation expense. The improved gross profit margin principally reflects a more favorable mix of our medical and other electronics products. The electronic technology group's operating margin was 23.3% in the fourth quarter of fiscal 25, as compared to 24.3% in the fourth quarter of fiscal 24. The operating margin change principally reflects an increase in SG&A expenses as a percentage of net sales, primarily from the previously mentioned higher share-based compensation expense, partially offset by the previously mentioned improved gross profit margin. before acquisition-related intangible amortization expense. Our operating margin was a very healthy 27.3% as intangible amortization consumed around 400 basis points of our operating margin. This is how we judge our business as that most closely correlates to cash. On a true operating basis, these are excellent margins, and we are very pleased with them. And now I turn the call back to Victor Mendelson to discuss our outlook. Thank you, Eric. Looking ahead to fiscal 26, we anticipate net sales growth across both the flight support group and the electronic technologies group, driven by organic growth from increased demand for the majority of our products, as well as growth for our recent acquisitions. We'll continue to pursue selective acquisition opportunities that complement this growth, and our disciplined financial management remains dedicated to creating long-term shareholder value through a balanced combination of organic growth and strategic acquisitions while maintaining financial resilience and flexibility. Acquisition activity, of course, continues to be robust across both operating segments. supported by a healthy pipeline of potential acquisition opportunities currently under evaluation. And as such, we remain focused on identifying high-quality businesses that complement HICO's existing operations and, of course, further strengthen our strategic positioning. Consistent with our long-standing acquisition philosophy, we will only pursue acquisitions and opportunities that meet our strict financial and strategic criteria that are accretive and have the potential to generate durable long-term value for HICO and for our shareholders. So thank you very much for attending our call. Those are our prepared remarks, and we ask Samara, the operator, to please open the line for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Larry Solo with CJS Securities.