Thank you very much, Samara. Good morning, and thank you to everyone on this call.

We thank you for joining us, and we welcome you to HEICO's second quarter fiscal '26 earnings announcement teleconference. As you've heard, I'm Victor Mendelson, HEICO'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 HEICO, 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 HEICO 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.

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 HEICO 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. HEICO is very proud to support the United States and its allies' defense needs.

Getting to our results, our record second quarter fiscal '26 results probably speak for themselves, and we'll delve into the details shortly. 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. 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 HEICO cost-effectively provides.

I should add that that list of what we provide keeps on growing. Fuel prices eventually settle back, spurring even more growth.

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 in 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 HEICO, the most common word is trust.

They trust that our company will deliver real and sustainable growth, that we'll deliver innovation, that we'll deliver quality, that we'll deliver real cash. It's very important: real cash.

We will do all of this honestly, among other things. They call it the HEICO culture, and we like that.

Our most recent quarterly and year-to-date results are just another manifestation of the HEICO culture. Summarizing those results, today we emphasize that consolidated net income, operating income, and net sales in the second quarter of fiscal '26 are again record results for HEICO, increasing by 49%, 41%, and 25%, respectively, compared to the second quarter of fiscal '25.

The Electronic Technologies Group set all-time quarterly operating income and net sales records in the second quarter of fiscal '26, improving 56% and 34%, respectively, over the second quarter of 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. 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 of fiscal '26, up from $156.8 million, or $1.12 per diluted share, in the second quarter of 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 of fiscal '25. Meanwhile, our net debt to EBITDA ratio was 1.74 times as of April 30th, '26, as compared to 1.6 times as of October 31st, '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, Exxelia, 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.

Getting some groans from that pun here in the room. I dedicate that one, by the way, to Rob Stallard.

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.

Now I turn the call over to Eric Mendelson, fellow Co-Chairman 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 HEICO's outstanding team members around the world for delivering another exceptional quarter.

What HEICO's 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% 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 customers' 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 EBITA, 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 HEICO 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's 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 deep 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% and 24% for all of fiscal '26 based on the group's current composition of companies. Now I turn the call back to my fellow Co-Chairman and Co-CEO, Victor Mendelson, for his comments on the future outlook and closing remarks.

Eric, thank you very much. We expect the HEICO culture will continue propelling us forward.

For the remainder of fiscal '26, we anticipate increased sales in both the Flight Support and Electronic Technologies Group to continue to be supported by our underlying demand for our products and contributions from recent acquisitions. Our capital allocation approach remains opportunistic, with a focus on balancing organic growth and acquisitions while maintaining liquidity and financial flexibility.

Should also point out that acquisition activity remains robust, as we've talked about a little bit already in this call, across both operating segments, and that's supported by a healthy pipeline of potential opportunities we are currently evaluating. Our long-term acquisition strategy remains unchanged.

You're all familiar with it, and we continue to focus on identifying high-quality businesses that complement our existing operations, strengthen our market positions, and support our long-term growth objectives. As always, we will remain disciplined in our approach and will only pursue acquisitions that meet our strategic and financial criteria and that we believe will create meaningful long-term value for all of our shareholders.

At this point, I'm going to turn the call back over to Samara to introduce the questions. This is the question and answer section of the call.

Thank you, Samara.

Hey, thanks. Good morning, guys.

Eric, I think you described it really well by just the one word: wow. Really really impressive quarterly results, and I'm sure your dad's smiling from above.

I guess first question, Eric, for you, just on FSG. Could you just kind of give us the really impressive growth on the organic side.

Can you just run down with the mix between the commercial and the defense side, on the part side and, what drove that growth, and nice step-up from last quarter other than the pull-forward. Do you think, does this feel sustainable?

Is there anything unusual in there, or?

Yeah. Larry, thank you very much.

We are really proud about the performance that we had in the second quarter across the entire business, both in the FSG as well as the ETG. I've commented many times in the past that I think we've got some of the greatest group of sandbaggers that I've ever had the pleasure of knowing.

I joke around and call them sandbaggers, but actually I think they're really trying to estimate what they think is reasonable going forward. Frankly, they, more than sandbaggers, they're really super talented.

They have very aggressive goals, and they always seem to outperform. That's what really happened in this quarter.

Breaking down the organic growth by product line, when you look at parts, it's around 22%. Specialty products is 21%, and component repair is about 10%.

You may say, well, why is component repair so much lower than the others? One is it's an extremely competitive business, as everybody knows.

Number two, it's dependent on getting parts in from suppliers in order to complete these components. If we're missing a single part, we can't build an assembly.

As a result, there are still significant supply chain issues. There's no question that it's getting better, but we've got massive backlogs in all of our 22 FAA-approved repair stations, and frankly, a lot of them are waiting on parts.

I know the component repair organic growth would have been higher had it not been for the parts delays. It is also a competitive business in all fairness.

One thing also, Larry, I might want to mention, this is Carlos. I mentioned it last quarter.

Just keep in mind, we have been seeing a lot more DER and PMA-friendly repairs with the acquisition of Wencor. The one dynamic that brings to us is as we can populate these repairs with more PMA product, we have less top-line, but more bottom-line growth.

In other words, it's a more profitable repair without having to charge customers for the high-priced OEM parts, keep that in mind also. No, absolutely.

I think the defense specialty side, that's great numbers, and I think they're actually not that big of a surprise, obviously, with what's going on today in the world on the defense side. The commercial aviation and the parts growth this quarter really strong.

In what we feel like is a little bit of a slowdown just on the demand side just from travel or a little bit, have you seen any slowdown in travel, and are you guys just continuing to take market share gains as prices continue to rise and companies look for discounts? Is that even stronger in this period?

I think it is market share gains. We have done exceptionally well.

I'm glad Carlos mentioned what he did about the component repair business and adding PMA and DER to those component repairs. I can tell you I was at the MRO show roughly a month ago, and I'm on the phone with customers all the time, and they are, I would literally use the word, clamoring for more parts.

I have never seen both our internal operations folks, our sales people, as well as customers literally pushing us to do significantly more. Yes, with regard to the war in Iran, that has impacted some sales to the Middle East, but you can see that we've well overcome them elsewhere.

That's because of our market share gains and just the tremendous enthusiasm in what we're providing, certainly on the commercial aerospace side, but frankly, also on the defense side, where we've been extraordinarily strong in that area. We did have a situation where a customer asked for us to pull forward some sales that we had originally planned for in the second half of this year.

That did boost the second quarter a little bit, and we disclosed about 60% 60 points basis point improvement in our margin as a result of that, because we've got the fixed cost associated with running the business. We just move the sales forward, so as a result, we have that kind of impact.

The demand is just very, very strong across both our commercial and defense business.

Great. Thanks.

Appreciate that color.

Thank you.

Good morning Victor, Eric, Carlos. Nice results again.

Eric, I guess sticking with you, just maybe if you could level set us a little bit. I know, historically, more of your revenue from FSG comes out of North America, but Middle East exposure, maybe if you've seen any behavior changes or maybe just give us any color, just on globally, how you're seeing regional demand.

Thanks.

Peter, it's a great question, and all of the areas remain very strong. There has been a little bit of a slowdown.

I don't have the percentage number here, and I wouldn't want to give a misleading answer, because the Middle East as a percentage of our total sales is relatively small. We have seen strength really across the board.

I think one of the other things that's important to note is that whenever there's angst or concern, anxiety, whatever, with regard to commercial aviation, airlines realize that they've got to get more serious and cut costs. That always helps us in the long term.

There ends up being more interest in our products. We get approved in more spaces, and that inures to greater future revenue and earnings.

To answer your question, nothing significant in the Middle East, but tremendous knock-on effect around the world where people realize that they got to cut costs. There's no reason why they shouldn't buy more of our product line.

We've got the quality. We got the turn time.

Certainly, we have the price, and it's just a matter of them doing what they got to do in order to buy these parts.

Got it. Appreciate the color.

Appreciate that. Victor, just maybe quickly on kind of the space end market, which historically has kind of been a little more volatile, but the demand signals continue to be really robust there.

Maybe if you could just describe what you're seeing from a demand signal and just kind of the capacity to support that. Thanks.

Thank you. I think your question was specifically on space, right?

Commercial space. Space, I would say actually both defense and commercial, orders are strong.

The demand outlook is nice for that. You'll recall that historically, it's somewhat volatile for us, and I would expect to continue that to be the case, somewhat volatile, but continuing up and, if you will, to the right and a positive place for us.

By the way, in a sense, maybe a little bit of a metaphor in the ETG generally. If you look at the ETG business, we don't panic when it's a lower quarter like it was in the first quarter.

We don't become overjoyed or manic when it's great as it was in the second quarter. We're looking for a certain growth rate over time and over the course of the year.

We feel really good about that given the backlogs that we have, by the way, and the order flow that we've seen, record backlogs and record orders.

Got it. Thanks, Victor.

Thanks, guys.

Thank you.

Hi. Good morning, gentlemen.

Great results. Maybe just first on the ETG segment, are these margins reflecting just purely timing of maybe some obviously better mix benefit in the quarter, or is there anything else you would call out as maybe structurally we should think about?

Carlos, it sounds like you're maybe thinking about the margins for the segment could be a little bit better moving forward here relative to prior commentary.

A couple of things. I think I'm looking at it as the first half of the year, right?

That's the way I look at it. The 90-day slices of time, while they're important, I don't think they're necessarily always entirely reflective of where the business is going.

I look at the first half of the year, with the first quarter being weaker than it should have been, the second quarter being very strong, and I look at that average. I think we continue to target the same growth rates in the ETG over time, and maybe we'll do better.

The order book certainly I would say continues to amaze me. I would say we'll continue to look for that 22% to 24% GAAP margin, which, as you heard, is 400 and some odd basis points higher in what we really look at and think of how the business runs.

I think there's potential to do better on the margin, but I would just encourage people to not get too excited yet. Like Eric said, it's not sandbagging,

but

our businesses are conservative. Talk to our folks, they're pretty conservative.

Carlos, I don't know if you have something to add to that.

I would just say, we were blessed with a quarter where all the verticals or industry plays had double-digit organic growth, and when that happens, we're going to post nice margins. That doesn't always happen, right?

It is a lumpy business, and so to Victor's point, I think for the six-month period, the margins in the segment were 23.5%, and I think that that's pretty damn good. My sense is that if we continue to catch this high growth, we'll probably be towards the high end of the overall range we've given you.

We don't want to overpromise something, and I think it's better to weigh on conservatism in that regard.

Thanks, Carlos. Just if I could, you got obviously defense exposure in each of the operating segments.

It sounds like there was some pull-forward or accelerated shipments in FSG, maybe ETG as well, but I'm just curious across the segments if you can talk about your defense bookings. Maybe across defense, what was book-to-bill for the company in the quarter, and/or maybe just trends you're seeing in bookings, because it clearly sounds like acceleration in defense is what we're seeing across both the segments.

Yeah. Ken, this is Eric.

That's a great question. Unfortunately, I don't have the booking information in front of me at the moment, but I can tell you it's been very strong.

In all of the areas, aerospace as well as defense, in terms of the end markets. It's been incredibly strong, and I can tell you that conversations about additional business has also been very strong.

If a lot of those conversations end up turning into orders, which we're hopeful they will, I think you're going to see continued growth, continued significant growth over on our defense side. We have a unique suite of products.

We deliver on time. Our costs are very reasonable, outstanding quality, and I think we're in a very, very good position to continue to fill our government needs, as well as those of the needs of our allies.

We're very optimistic on that.

What's interesting, Ken, from a macro standpoint, we continue to be about, on a consolidated basis, just a tick under 30% defense of our sales, and that's been pretty consistent. Maybe a percent higher this quarter comparatively to the Q2 of '25.

What's there? Defense business is growing at a nice clip, but what I'm trying to apply to you is that the rest of the business is keeping pace, too.

All the verticals are growing at a really nice clip, it's not just defense that's pushing the cart up the hill, if you would. It's all the verticals really firing on all cylinders.

Thanks, Carlos. Great results, everybody.

Thank you.

Hey, good morning,

John. Thank

you. Hey, good morning.

Thank you for taking the question and great results. On the comments on missile defense interceptors, you've in the past mentioned great positions on some of the exquisite programs like Standard Missile and PAC-3.

You also mentioned having some supply arrangements with some of the new emerging players. Is that specifically in missile defense?

Is your products competitive, and kind of how does that rank in the growth factors for the company that you're excited about? Thank you.

Yeah. On the defense tech program, a number of our subsidiaries are supplying into the defense tech firms.

They're applied on a variety of programs. I don't think it's just limited to missile defense in the defense tech sector.

I think it's actually pretty broad. It certainly does include some missile defense in that sector, and it would make sense given the other things that we supply.

That business I believe will continue to be a growing business for us, as it will be of the overall market. I don't think the historical programs are going away anytime soon.

I think they still have a very important role, but the defense tech ones will continue to grow fast.

I agree. This is Eric.

Just to add to what Victor just said, in addition to the missile defense in the new tech area, we also are very active in the drone

and the

unmanned missile business. I think that continues to remain very strong.

Don't get me wrong, the exquisite legacy programs continue to be of tremendous importance to us and are our major drivers of the success of the company and, frankly, the ability to intercept some of the most dangerous weapons. The only way you can take it down is with these very complex, expensive programs, and those continue to be very, very important to HEICO.

I think the comment is that we are also exposed on the new defense tech space, so as that gains business, HEICO is going to be able to serve that market as well.

Thank you. Then I'll just slip another fun one for you, there is a proposal to go to just reporting earnings twice a year instead of four times, given the lumpiness in the results and kind of the consternation after last quarter, just kind of any thoughts on whether reporting only twice a year would be appropriate for the company?

I think this is something that we have to see. It's definitely a possibility, definitely something that we'll talk about.

Our audit committee will talk about. I think we have to really get a little more definition on where things are going and what shareholders would like to see.

There are advantages and disadvantages to each, I think we'll have to really understand those better. I don't think we made up our minds on that.

Yeah.

This is Eric. I can say that from an operational perspective, reporting quarterly, I think, is a good thing, because it gets people four times a year to hurry up and get things done and to make sure they close out the quarter strong.

If they only have two opportunities to do that, I don't think that, in general, for industry, while it would be convenient from a corporate perspective for the corporations to report semiannually, I think from an operating perspective, having the cadence where you've got to do your shipments monthly and then you've got to report quarterly, I think, in general, for industry is a good thing. That's my two cents.

I think a lot of our operating people may not be excited for me to say that, but that's what I believe. The countervailing view on that, of course, is it causes a lot of short-termism in 90-day slots of time and an overfocus on that.

We're going to have to discuss that and review the advantages and disadvantages.

Good luck with the rest of the year. Thank you.

Thank you.

Hey, guys. Thanks for taking my question.

Eric, I wanted to just maybe ask a bigger picture question about this idea of peak aftermarket that's, I would say, skeptics are focused on. Basically whether aftermarket heavy players like yourselves have been overearning in recent years, and, of course, the implication is there's some sort of revenue or margin cliff.

At the same time, Eric, you're saying things like, and I don't mean to misquote you, but never been more optimistic about FSG's future. I heard you say customers are clamoring for parts.

There's obviously just a big delta there. I was hoping you could just take a second to reflect on it.

What are the skeptics missing? Because you've been doing this a long time and, as you mentioned, set a lot of records along the way.

Yeah. I think, John, I really appreciate your question.

I think the skeptics really should be more focused on people who are engaged in the parts trading business. People who have big inventories of existing product that is not in production are going to be hurt if there are increased retirements of those parts.

I can understand them being concerned. I think that concern is massively misplaced when applied to a company like HEICO, because the newer generation of equipment that we are coming out with is significantly more expensive than the older generation that it is replacing, number one.

Number two, there's a lot more of it. I've heard people say, "Oh, 757 and the engines on it is very important to HEICO."

Excuse me for saying this, but that is BS. That is just absolute nonsense.

There is zero truth to that. I won't come out and say what percentage of our sales are from 757, but it's de minimis.

For HEICO, I think the reason why I am more optimistic about the future is because I see all of these products, and I see how expensive they are. That's why I think we're going to do very well.

We have a new product development generation ability. That new product development area has got more product than they can possibly handle.

In speaking with our operating folks last week, and going over the backlogs in those areas, we've got more parts than we've ever had, and we have customers literally begging us to do significantly more. With the price of the new generation equipment, I think we're going to do extraordinarily well.

That's why I'm very optimistic. People who are in the parts trading business, I think they've got a different dynamic that is not HEICO's dynamic.

Yes, we have a small parts trading and extremely successful parts trading business within HEICO, but it's very small relative to our Flight Support Group, and that's intentional. We want to focus on developing proprietary parts, proprietary repairs, doing outstanding distribution, specialty manufacturing.

That's our business.

That was fantastic. I don't think I can follow up on that, I'll just leave it there.

Thanks.

Thank you very much.

Great. Good morning, guys, and thank you.

I have three questions. The first

Morning, Sheila.

Morning. The first one is to Victor and the second one as well.

Victor, what did you have for breakfast, and secondly, what did ETG have for breakfast all quarter long? How do you think about what really accelerated versus Q1 and how that demand continues in your various end markets within ETG into the second half?

By the way, Sheila, this is Eric, I just have to tell you what Victor ate for breakfast was money.

I had high-protein breakfast: egg whites with whole wheat toast and some avocado. What did ETG eat for breakfast?

Maybe it's money. In all seriousness, and I thank you, by the way, for your generous comments.

In all seriousness, I've been alluding over the quarters to the very strong order rate, the backlog, the shipping rate, and the fact that some quarters are stronger and weaker than others. We just have a very strong order book.

It continues to grow, and that's a reflection in all the markets, interestingly enough. I guess, at the end of the day, it comes down to a combination of two things: one, what we design and sell to our customer, what we produce and do for our customers, and their need, which seems to be growing in all the markets that we serve.

I'm excited about defense, as I've mentioned, we see a tail on this. I know these framework agreements are still being worked on, and we're not sure where they all stand, but we have seen both an increase in orders over the last few months for a lot of those programs, the historical programs that we've talked about, as well as new programs and R&D on those.

A lot of inquiry from our customers about how can you 6x, how can you 4x, how can you 10x your production of certain components, and what does that look like, and give us a quotation for it. It just feels like a good moment.

Great. Eric, one for you to follow up on John's question, if possible.

I know a lot of misconceptions about what's going on in the aftermarket, any color you could give us whether that's geography, or when the aftermarket was really strong, people thought about engine versus airframe. How are you seeing demand changes as capacity utilization comes down?

We're seeing tremendous demand across the business. Our PMA business is roughly 3/4 non-engine, roughly 1/4 engine, and, sort of in that area.

We've seen just tremendous demand across the board. As I mentioned, Middle East a little bit lower, but, if you look at the total across the board, that's not as impactful to us.

Frankly, as that flying gets absorbed by the European and the North American carriers and other Asian carriers, I think we're seeing a bit of an offset there. Just sort of a rerouting around the world while this conflict is ongoing and hopefully gets resolved quickly.

It is strength really across the board for us.

Thank you.

Thanks, Sheila.

Good morning, everyone.

Good morning. How are you?

Doing great. I'm going to switch gears a little bit to the industrial aeroderivative engines.

You have owned that business for a full quarter now. Could you please discuss what were the surprises, both to the upside and the negative surprises, getting into that vertical?

Mariana, I'm sorry. The phone had cut out.

You're saying with regard to which?

Oh, can you hear me better?

Yes.

Oh, perfect. On aeroderivative engines, on the industrial ones.

You have been in the business for an entire quarter. What were the surprises, both to the upside or the downside, as you get deeper into that end market?

We are very excited about that. As you've seen, the aeroderivative market is incredibly strong.

The industrial gas turbine market is very strong. Those are the two areas that Ethos, which is now part of Wencor, satisfies, and we think that that's going to be a very, very strong market for us.

We've been working on this for a while, studying that business and negotiating on the transaction roughly a year ago. We're just delighted that it's part of the HEICO stable.

I think they've got tremendous capability in Connecticut, in South Carolina, and then also in Aberdeen, Scotland. I visited that facility this quarter, and really great people, great technology, focus.

I think we are very well positioned as the AI boom increases demand for power generation. I think Ethos is going to be in and HEICO in a great position to be able to pick up that business.

I'm very happy with it.

Perfect. Then on defense, you just did the Southwest Antennas acquisition, and mentioned a little bit about your strategy of what you acquire on defense, or more robust businesses, mature businesses, but how strong is that pipeline, and how competitive are the prices to be able to acquire those targets, especially in a market where, as you discuss, there is a lot of demand, recapitalization around the world, governments that are more open to have new entrants, both from the innovative point of view, but also, I don't know, double, triple source for resiliency?

What is the role you want to play there? What areas are you looking at, and how competitive you could be in a market that I would imagine is relatively expensive today?

We're looking at components or subcomponents that are used in next-level systems. That's been our strategy since we started doing defense.

We've obviously been very successful at that. Pricing for assets for businesses has definitely increased over time.

I think more people are attracted to it. They realized what we realized long ago.

Having said that, we continue to pay reasonable and fair prices, and we're looking for businesses that are not so much mature as they are growing businesses that have excellent placement and secure placement within their markets or within their product set, but very importantly, that they're growing businesses. As you can see, we've continued to be able to do that.

I think it will be a competitive market as it's become over the past number of years. It's not a recent thing.

It's probably been that way for about 10 years now. Our pipeline is kind of, in a sense, filled with those kinds of companies.

In particular, by the way, I should add, that we are the best buyer for a seller who is looking for a good home for the business. That's really, I would say, our particular strength is that people who want an owner or a partner that often will allow them to continue to own part of the business, few companies do that, that's not going to resell in a few years.

When we buy, we buy to own forever. Private equity is going to flip you out, and it's going to put pressure on to achieve short-term results.

We don't do that. Somebody who's built a business for maybe decades, and, in a sense, their name is on the door, they love the business, they want an owner who's going to continue it in the same place with the same products, the same people, the same approach to life, those people are generally attracted to us.

I think there are enough of them who want to transact with us that it works.

Mariana, adding on to what Victor just so well said, if you look in our 10-K, we have 30 As of the end of last year, we had 31 partners, 31 minority partners in our businesses. In order to develop a corporate culture and a structure to be able to work with partners, to be able to share and cooperate and be collaborative, that is not something that just happens overnight.

We've been doing this for nearly 30 years we've had partners, and we understand how to work with partners, how to create a win-win. As Victor said, when private equity buys a business, they're just looking to find the right time to sell.

For us, all of our businesses are intended to be owned in perpetuity. We don't sell them, and that goes to all of the decisions that we make with regard to operating the companies and the investments that our partners want to make.

These partners have spent their lives building these companies, and they really care about where they are going. That's why, as Victor said, that's our greatest differentiator.

I would also add to your comment about pricing going up, that the aerospace and defense industry over the last number of years has attracted a lot of new entrants because people think, "Oh, this is an easy place to make money." Of course, the whole industry came out of COVID, it came off of a relatively low bottom, which caused people to get very excited about it.

One of the other things that we're able to do, since we've made about 110 acquisitions, we have a tremendous depth of knowledge into what makes a business work and what doesn't. I can tell you that the aerospace and defense industry is littered with private equity and other corporate deals where people overpaid and they are significantly underperforming.

HEICO has been very careful to not go into those pitfalls. As Victor said, when we find a business that is looking for a long-term owner, there is no better home than HEICO.

I think, with regard to pitfalls, we see books on companies that want to come to market, or they want to start talking early about coming to market, and you really have to understand the subtleties of that. I think, one day there's going to be quite a shakeout with regard to those businesses.

I do agree that that is your secret sauce when you go to acquire, and that's a culture that is hard to mimic if it's not coming from within. If I may, one more follow-up.

On these new agreements, and you mentioned the framework agreements before, there is a lot of talk around cash neutrality, but you generally don't approach businesses that way. You actually care about operating profit and free cash flow generation.

What is your appetite to acquire businesses that are less profitable than your core, at least for the near term?

As a rule of thumb, we don't like to acquire businesses with less than a 20% operating, or as we call it, EBITA margin. There have been exceptions to that which we've made where we felt that the margin would improve or we bought a money-losing business and we were consolidating with something else and we knew that the margin would be much higher than that in short order.

Those are the exceptions. If there is something extremely strategic that we think will get to those margins, but the likelihood of us just buying something that we think will remain sub-20% operating margin in, let's say, perpetuity or for the foreseeable future is unlikely for us.

Look, we've also got a very strong balance sheet, and we're able to make investments. The way that we have to anchor and justify those investments is with concrete long-term agreements.

Assuming that we can get those, and we've been able to get a number of those, we are willing and able to spend the capital, hire the people, expand the facilities around the world to be able to do this. I think the U.S.

government would be well served with regard to these multi-year framework deals to make sure that the industry has got the money, can really rely on that, because if you look historically within aerospace and defense, it runs in boom-bust cycles. That's not good when it comes to hiring or for capital allocation.

If the Department of War comes forward with these multi-year procurements, I think that that's going to be extremely helpful to both the Department of War as well as to the companies, and most importantly, to the voters and to the people who this really impacts.

Thank you so much for the color.

Thank you.

Thank you.

Good morning. This is Matt Marottolo on for Scott Mikus.

One question for Eric. You acquired the 777 AIMS and 737NG VIA product lines a little over a year ago from Honeywell.

You now support Boeing's new builds on the 777 Classic and 737NG derivatives like the P-8, E-7, in addition to servicing the aftermarket. If Boeing and Airbus were to launch next-gen narrowbodies later this decade or in early 2030s, would your operating units bid for work packages so they're specked into the program from inception?

I have to compliment you with your knowledge of the business, because it's exceptional and you nailed it. You're absolutely correct in everything that you said.

Yes, we definitely would. I can't comment specifically on whether those particular products we would bid in terms of work packages, but I could tell you across HEICO, we do have very good capability to be able to develop additional products and, for example, in our Gables Engineering subsidiary, and they've got the ability and, I think would be a phenomenal partner to develop additional products for both the airframers as well as for the avionics subsystem suppliers.

We are in great position to be able to support both, and that's what we currently do. With regard to the aftermarket for the products which you mentioned, yes, of course, over time that is, if you will, a melting ice cube, and those products will decrease in demand.

Frankly, we have been very, very happy with the performance of those businesses, and we think that there is a massive amount of business to be had over the next many decades on those programs. I do also have to just call out frankly to the folks over at Sunshine Avionics who are probably on this call who have done a marvelous job on the display unit and the AIMS and the VIA business.

We've heard from our partner on that business that the integration that Sunshine Avionics accomplished on those programs has been the best that they've ever seen. That was due to a tremendous amount of hard work, focusing on the details, and I can tell you that Carlos, Victor, and I are just absolutely grateful to the people at Sunshine and Luis Morell over at HEICO Parts and Repair who made all of this happen.

Perfect. Thanks, guys.

I'll leave it at one. Congrats on the quarter again.

Thank you.

Thank you.

Hey, thank you. Good morning, and great margins.

Thank you.

Thank you.

Just follow up on your earlier comment about a bit of a pull-forward on sales, could you quantify how much you think that was not just from a margin standpoint, from a sales standpoint?

Hi Gautam. It's Eric.

It's about, roughly between $15 [million?] and $20 million.

Gotcha. I wanted to ask, since the fuel prices have gone up since the beginning of the war, have you seen new customers approach HEICO about PMA parts, or I'm just curious if you've seen a change in customer behavior to take advantage of the lower cost offering that you guys have?

The simple one-word answer to that is yes. We have.

In many different markets. I obviously can't go into the details, but I had a call with the head of a customer who we've been talking to for many years about doing product, and it would be a new business, and I think, very very powerful for us.

Look, I think we've got a lot of kinetic energy built up at HEICO. We've got a lot of customer goodwill.

We've got the ability to design these parts and repairs. The customers want it.

We are not a threat to our OEM competitors. We're also in the OEM business.

This just supplements what they do. There's always a demand.

Some people want to stay in whatever, the Ritz-Carlton and the St. Regis, and other people have a budget, whatever, for a Marriott and a Hilton.

We at HEICO can support both. I think on the commercial side, we're very strong.

On the defense side, incredibly entrepreneurial and high performing, cost conscious, high quality, and we've got tremendous ability in that area and tremendous ability to scale. I think we're just in a very good place.

Are you seeing those customers, are they also saying, "Hey, can you reverse engineer these parts?" Are they giving you new product development ideas at a quicker pace than was the case prior to the conflict?

The same answer: yes. Yes.

100%. They are, because they realize, if you continue doing what you've done in the past, you'll get the same thing.

What's the old Thomas Edison quote? The definition of insanity is trying the same thing over and over again expecting different results.

They know that if they want to get high quality, short turn times at better prices, HEICO's the answer.

Last one, I think it's fair to assume, but since the quarter, demand has also been very good, it sounds like, right? There has not been a deceleration if you're willing to.

Correct. Correct.

Okay. Great.

Thank you, guys. Correct.

With the exception I had mentioned about, of course, the Middle East, that's a little bit lower, but in general, your statement is correct.

Excellent. Thank you, guys.

Thank you, Gautam.

Thanks, Gautam.

Hi, good morning. This is Josh Korn on for David.

Thanks for taking the question. We talked about margins a lot earlier.

Any way you could quantify how much the mix impact was in each segment versus kind of the other levers? Thanks.

This is Carlos. I would say both segments experienced favorable mix during the quarter, and that also was coupled with high volume growth.

There wasn't a lever or it felt like for the quarter is a little unique, but all verticals, all and markets were pushing at similar paces. There's nothing really to call out that was unique or unusual.

I think it was just a situation where candidly, we're busting at the seams, and when that happens, we're going to get some margin expansion. Some of that again is due to mix, and a lot of it, Eric mentioned it earlier, we do get a lot of leverage, incremental margin growth, on our fixed cost base because, one, our fixed costs are very low, and our G&A spend was down as a percent of revenue.

That's going to continue, by the way. I think as we continue to grow and add more volume, our relatively flat structure allows us to get a little margin expansion as a result of that.

We don't have to hire seven more layers of vice presidents to manage the business. Our guys manage to juggle many balls at one time and get things done.

That's the story. I know what you're searching for.

There's not one area that I would call out as being more impactful than the other. It was just a solid push across the entire platform.

Great. Thank you.

I'll stick to one.

Thanks.

Hey, good morning, guys.

Hey, Louis.

Maybe Carlos for you, you talked about the GAAP margins in ETG being 22% to 24%. Given what we've seen this year and over the last few years in FSG, how should we think about the margin potential there?

I knew somebody was going to ask. It's a good question, and one that we've pondered quite a bit here.

Two things: with the incredible growth that we're seeing in our aftermarket business and the surge, if you would, in some of the military business in the FSG, I do think that we've got a little bit more of a stable margin lift. If I was pressed to give you a range, my thinking right now is probably 24% to 26% is those two end posts that I think will float between.

Depending on any given 90-day period, if we have one vertical outperforming the other, we'll migrate to the higher or low end of that range. I think that's kind of where we're at, and yes, my thinking on that has come up a little bit from prior quarters.

All right. I appreciate that.

Maybe Eric, I know obviously you sort of given us the color on the accelerated deliveries. Just to be clear, does that flow through the specialty products, or is that through the parts, you call out that 20% organic growth, just curious?

I'm sorry. Can you say your question one more time?

I'm a little confused.

Sure. You said that you had 20% organic growth in aftermarket replacement parts and also through specialty products.

I was just curious, the incremental kind of $15 [million?] to $20 million of pull-forward, was that flowing through specialty products, or is that flowing through the parts business?

That would probably be a little bit in both, the way we end up accounting for it.

Great. Thank you.

It was all defense. It was all the defense market.

Thank you.

Thank you. Good morning.

Morning.

Hi, Gavin.

Guys, how many PMA parts are you introducing annually now, and what would be the considerations to taking that number higher?

I'd say we're in the 500 area, and we've got the ability to do more. We've got to scale the whole thing.

There always is the question: do we do more, or do we pick higher value potential product? That's always up for consideration.

I'd say it's in the 500 area. The other thing that's important to also understand is that when we're developing these parts, sometimes we do so in conjunction with our principals, sometimes they hold the PMA, sometimes we hold the PMA.

The other thing which is really important is the DER repairs, because the DER repairs basically can frequently, or very frequently, perform the same function, the same effective function as a PMA part, and we achieve the sales through that channel.

Oh, mute button. Thanks, guys.

Appreciate it.

Thanks, Gavin. Thanks, Gavin.

Thank you very much, Samara, and thank you, everybody, for being on the call. We look forward to talking with you on our next call, and if, in between, you have other questions, feel free to contact us.

Thank you very much for your confidence and your support. Have a good day.