Heico Corporation

Welcome to the HICO Corporation second quarter 2026 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, 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 our goods and services, product specification costs and requirements, which could cause an increase in 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, 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 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 Victor Mendelson, HICO's co-chairman and co-chief executive officer.

Thank you very much, Samara. And good morning and thank you to everyone on this call. We thank you for joining us and we welcome you to HICO's second quarter fiscal 26 earnings announcement teleconference. As you've heard, I'm Victor Mendelson, HICO's co-chairman and co-chief executive officer, and I'm joined here this morning by my fellow co-chairman and co-chief executive officer, Eric Mendelson, as well as our executive vice president and CFO, Carlos Macau. Before we get into our record results, Let's take a moment to thank the people who produced yet another set of records for Heiko, and that's our team members. It's your resolute dedication, your diligent efforts, and your focus on exceeding customer expectations that produce these results. We know you are what makes Heiko unique, and we're also grateful to call you our colleagues and our friends. We are excited about the opportunities ahead and our company's future with you. We further thank our customers for your confidence and your support. We know you are why we exist. And we extend our sincere gratitude to the brave servicemen and women, past and present, of the United States Armed Forces and allied military forces around the world, including HICO team members, customers, vendors, and their family members. With Memorial Day just behind us, we honor and remember those who made the ultimate sacrifice in service to our country and to our allies. We remain deeply grateful for their courage, for their dedication and commitment to protecting the freedoms we all enjoy. HICO is very proud to support the United States and its allies' defense needs. So getting to our results. Our record second quarter fiscal 26 results probably speak for themselves, and we'll delve into the details shortly. And though we are certainly proud of this quarter's results, as well as the many preceding quarters where we repeatedly set records, it's the future that energizes us most. HEICO is, as they say, firing on all engines. Business is very strong for us virtually across the board, including in our biggest markets, commercial aviation, defense, and space. Orders continue at record or near record levels for us in nearly all of these markets. These markets are themselves growing, and they're growing rapidly. People are traveling ever more and ever more. And while short-term shocks like the current just war might create short-term disruption in the inexorable upward trend, the short-term disruptions are by definition always brief, with more planes in the sky and an ever-increasing need for what Heiko cost-effectively provides. And I should add that that list of what we provide keeps on growing. Fuel prices eventually settle back, spurring even more growth. And in defense, our country and its allies have recognized the need to invest more in defense and to replace depleted stocks. We are now experiencing this in our defense sales, in our defense orders, and our defense backlog. We expect this to continue and to have a multi-year tail for which we are very well prepared. In space, the industry is rocketing ahead, pun intended, and so are we. Our presence on key programs, both in the new space and traditional realms, continues growing. Innovation and quality are crucial. They are crucial in everything we do and in every market we serve. We've maintained full investment in our engineering and production capabilities to handle what we're experiencing. Our company supports both historical customers as well as the new disruptors in the defense tech, new space, and new commercial aircraft models. HEICO has always been and will always be where the industry goes and where it grows. The adaptability has been one of our key traits since we took over the company roughly 36 years ago. When I ask people for words they associate with Heiko, the most common word is trust. They trust that our company will deliver real and sustainable growth, that will deliver innovation, that will deliver quality, that will deliver real cash. That's very important, real cash. And we will do all of this honestly, among other things. They call it the hyco-culture, and we like that. So our most recent quarterly and year-to-date results are just another manifestation of the hyco-culture. And summarizing those results, today we emphasize that consolidated net income, operating income, and net sales in the second quarter of fiscal 26th are again record results for Heiko, increasing by 49%, 41%, and 25% respectively, compared to the second quarter fiscal 25. The electronic technologies group set all-time quarterly operating income and net sales records in the second quarter fiscal 26, improving 56% and 34% respectively over the second quarter fiscal 25. These increases principally reflect strong 17% organic growth, driven by increased shipments and more demand for most of the electronic technologies group's products, as well as contributions from our fiscal 25 and 26 acquisitions. The flight support group also set all-time quarterly operating income and net sales records in the second quarter of fiscal 26, improving to 31% and 21%, respectively, over the second quarter of fiscal 25. And I might add that the second quarter of fiscal 25 itself was extremely strong, as have been all the quarters surrounding it. These increases principally reflect strong 19% organic growth from increased demand across all of our product lines, as well as the contributions from our fiscal 26 acquisitions. Consolidated net income increased 49% to a record $233.8 million, or $1.66 per diluted share. In the second quarter fiscal 26, up from $156.8 million, or $1.12 per diluted share in the second quarter fiscal 25. Very notably, our cash flow provided by operating activities increased 43% to $292 million, as I said, real cash. in the second quarter of fiscal 26, up from $204.7 million in the second quarter of fiscal 25. That strong cash generation remains a hallmark of our strategy, and it does permit us to invest in our people and our growth while increasing shareholder value. Consolidated EBITDA increased 37% to $408.3 million in the second quarter of fiscal 26, up from $297.7 million in the third quarter fiscal 25. Meanwhile, our net debt to EBITDA ratio was 1.74 times as of April 30, 26, as compared to 1.6 times as of October 31, 25. This increase results from our successful completion of four acquisitions so far in fiscal 26. In April, We announced that three of our subsidiaries, 3D Plus, Accelia, and VPT, supplied mission-critical electronic components on NASA's Artemis II mission, which successfully marked NASA's return to deep space human exploration. We congratulate NASA and the thousands of people behind this landmark mission and are honored that our subsidiaries were selected as trusted suppliers on a historic program. as they are on many other key and historic programs. I guess you could say we are over the moon on this one. I'm getting some groans from that pun here in the room. I dedicate that one, by the way, to Rob Stollard. Our recent acquisition activity also remained brisk. In April, we completed two more acquisitions. The Flight Support Group acquired 80% of the stock of Sherwood Avionics and Accessories, which is an FAA and EASA Part 145 repair station specializing in the maintenance, repair, and overhaul of complex, mission-critical, mechanical, and electromechanical components for defense and select commercial aviation platforms. The purchase price was paid with a combination of mostly cash, using proceeds from our revolving credit facility, and some shares of HEICO Class A common stock. The Electronic Technologies Group acquired 90% of the stock, of Southwest Antennas, Inc., which is a well-known and very well-regarded designer and manufacturer of high-performance, rugged, and mission-critical antennas primarily for ground-based defense and law enforcement applications. The purchase price was paid in cash using proceeds from our revolving credit facility. We expect both of these acquisitions to be accretive to our earnings within the year following the acquisition In addition, we have an excellent potential acquisition pipeline consisting of great potential transactions, both large and small. I now turn the call over to Eric Mendelsohn, my fellow co-chair and co-CEO, to go into some more details about business.

Eric. Thank you very much, Victor. Before reviewing the numbers, I would first like to recognize and thank Heiko's outstanding team members around the world for delivering another exceptional quarter. What Heiko continues to accomplish is remarkable, and on behalf of our leadership, the board of directors, and shareholders, we sincerely thank all of our team members for their continued commitment to our company, our customers, and to one another. The flight support group's net sales increased 21% to a record $929.4 million in the second quarter of fiscal 26, up from $767.1 million in the second quarter of fiscal 25. The net sales increase in the second quarter of fiscal 26 reflects strong organic growth of 19%, as well as the impact from our fiscal 2026 acquisitions. The organic net sales growth reflects impressive double-digit organic growth across all of our product lines. Flight Support Group's operating income increased 31 percent to a record $243.1 million in the second quarter of fiscal 26, up from $185 million in the second quarter of fiscal 25. 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 a more favorable product mix and higher net sales volume within our aftermarket replacement parts product line. Flight support group's operating margin increased to 26.2% in the second quarter of fiscal 26, up from 24.1% in the second quarter of fiscal 25. The operating margin increase reflects a decrease in SG&A expenses as a percentage of net sales, primarily driven by the previously mentioned SG&A expense efficiencies and the previously mentioned improved gross profit margin. During the second quarter, at our customer's request, we pulled forward some defense-related sales that had previously been scheduled for delivery later in this fiscal year. The incremental margin on these sales improved our second quarter operating margin by approximately 60 basis points. Given that the acquisition-related intangible amortization expense consumed approximately 240 basis points, of our operating margin in the second quarter of fiscal 26, the FSG's cash margin before amortization, or what we internally call EBIT-A, was approximately 28.6%, which has been consistently excellent and is 160 basis points higher than the comparable FSG cash margin of 27.0%, in the second quarter of fiscal 25. While we remain grateful for these margins, we are particularly proud that we did so while simultaneously delivering significant cost savings, outstanding service, and incredibly fast turnaround times to our customers. Victor eloquently spoke of trust in his opening comments, and these results once again show both our customers and shareholders that we can satisfy their objectives, not at the expense of one another, but simultaneously, and continue to build upon the trust placed in Heiko and our culture. I have never been more optimistic on the FSG's future. The incredible value we deliver to customers each day clearly is durable and in high demand. Now I will discuss the second quarter results of the Electronic Technologies Group. Wow. The Electronic Technologies Group sales, net sales, increased 34% to a record $459.5 million in the second quarter of fiscal 26, up from $342.2 million in the second quarter of fiscal 25. The net sales increase reflects strong organic growth of 17% and the impact from our fiscal 26 and 25 acquisitions. The double-digit net sales growth is mainly attributable to increased demand for our other electronics, defense, aerospace, and space products. The Electronic Technologies Group operating income increased 56% to a record $121.8 million in the second quarter of fiscal 26, up from $77.9 million in the second quarter of fiscal 25. The operating income increase principally reflects the previously mentioned net sales growth an improved gross profit margin, and SG&A expense efficiencies realized from the net sales growth. The improved gross profit margin principally reflects the previously mentioned higher net sales and a more favorable product mix of our aerospace products. The electronic technologies group's operating margin improved to 26.5% in the second quarter of fiscal 26, up from 22.8% in the second quarter of fiscal 25. The operating margin increase reflects the previously mentioned improved gross profit margin and a decrease in SG&A expenses as a percentage of net sales primarily driven by the previously mentioned SG&A expense efficiencies. Importantly, and this is really important, before acquisition-related intangibles amortization expense, our operating margin was 30.6%. Yes, 30.6%. As intangibles amortization consumed around 410 basis points, of our operating margin and is 390 basis points higher than the comparable ETG cash margin of 26.7% in the second quarter of fiscal 25. As we discussed last quarter, the ETG's operating margin is extremely sensitive to shipping mix, and we continue to expect volatility in our operating margin consistent with history. On a true operating basis, these are excellent margins, and we are very pleased with this quarter's profitability, while simultaneously satisfying our customers with industry-leading quality and turnaround time at very competitive prices. We continue to expect overall GAAP operating margins between 22 percent and 24 percent for all of fiscal 26, based on the group's current composition of companies. And now I turn the call back to my fellow co-chairman and co-CEO, Victor Mendelson, for his comments on the future outlook in closing remarks. Victor Mendelson, Co-Chairman and Co-CEO, Victor Mendelson, Co-Chairman and Co-CEO, Eric, thank you very much.