HEICO Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 19, 2023

There are 18 speakers on the call.

Operator

Welcome to the HEICO Corporation 4th Quarter Year End 2023 Financial Results Call. My name is Samara, and I'll be today's operator. Certain statements in this conference call will constitute forward looking statements, which are subject to risks, uncertainties and contingencies. HEICO'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-nineteen pandemic or health emergencies, HEICO's liquidity and the amount and timing of cash generation, lower commercial air travel caused by health emergencies and their aftermath, airline fleet changes or airline purchasing decisions, which could cause lower demand for goods and services product specification costs and requirements, which could cause an increase to our costs to complete contracts governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.

Operator

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 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 HEICO's filings with the Securities and Exchange Commission, including, but not limited to, filings on Form 10 Form 10Q and Form 8 ks. We undertake no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. I now turn the call over to Lawrence Mendelson, HEICO's Chairman and Chief Executive Officer.

Speaker 1

Thank you, Samara. Good morning to everyone on this call, and we thank you very much for joining us, and we welcome you to the HEICO 4th quarter fiscal 23 earnings announcement teleconference. I'm Larry Mendelson, Chairman and CEO of HEICO Corporation, And I am joined here this morning by Eric Mendelson, HEICO's Co President and President of HEICO's Flight Support Group Victor Mendelson, HEICO's Co President and President of HEICO's Electronic Technologies Group and Carlos Macau, our Executive Vice President and CFO. Before reviewing our operating results in detail, I would like to take a moment To thank all of HEICO's talented team members for delivering another strong quarter and strong year. Your continued focus on exceeding customer expectations and operational excellence has translated into superb results for the shareholders.

Speaker 1

I would also like to congratulate and thank the Wencour team for a terrific quarter within the HEICO family. We could not be more pleased with their performance and their results. I personally continue to be very optimistic about the future for HEICO. And as a matter of fact, I have never been more optimistic about HEICO's future than I am today. I will now summarize the highlights of our 4th quarter fiscal 'twenty three record results.

Speaker 1

Consolidated 4th quarter fiscal 'twenty three operating income and net sales represent record results for HEICO, driven principally by record net sales within the Flight Support Group and Electronic Technologies Group, mainly arising from continued strong demand for our commercial aerospace products and services and the contributions from our fiscal 'twenty three and 'twenty two acquisitions. Consolidated operating income And net sales in the Q4 of fiscal 2023 improved by 29% and 54%, respectively, as compared to the Q4 of fiscal 2022. These results mainly reflect 14% quarterly consolidated organic net sales growth as well as the impact from the acquisitions. Consolidated net income increased 6% to $103,400,000 or $0.74 per diluted share in the Q4 of fiscal 'twenty 3, and that was up from $97,200,000 or $0.70 per diluted share in the Q4 of fiscal 2022. In connection with the Wencor acquisition, HEICO incurred acquisition costs during the Q4 of fiscal 'twenty 3, and they decreased net income attributable to HEICO by approximately $13,600,000 or $0.10 per diluted share.

Speaker 1

Our consolidated operating margins Before the WinCor related non recurring deal expenses remain strong and are consistent with the expectations we have previously communicated. These margins are extremely healthy even though our product mix this year has meant lower overall margins than in prior year. In the Q4 of fiscal 'twenty three, Excluding the Wencor acquisition cost, consolidated net income increased 20% to $117,000,000 or $0.84 per diluted share. Our net debt to EBITDA ratio was 3.04 times as of October 30 1, 2023 and that compared to 0.25 times as of October 30 1, 'twenty 2. The net debt to EBITDA ratio increased in the fiscal year ending October 30 1, 'twenty 3, Principally reflects our successful offering of $1,200,000,000 in senior unsecured notes and increased borrowings on our revolving credit facility.

Speaker 1

We used from the sale of the notes and additional borrowings on our revolving credit facility to fund the acquisition of WENCOR. Cash flow provided by operating activities improved to $148,400,000 in the Q4 of fiscal 'twenty 3, and that was up from $143,900,000 in the Q4 of fiscal 'twenty 2. Cash flow provided by operating activities in the Q4 of fiscal 'twenty three reflects an increase in working capital, principally driven by an increase in inventories to support our increased consolidated backlog. The continued excellent cash flow generation by HEICO permitted our Board of Directors to recently declare A $0.10 per share semiannual dividend, which represents our 91st consecutive dividend payment. At this time, I would like to introduce Eric Mendelson, Co President of HEICO and President of HEICO's Flight Support Group, And he will discuss the 4th quarter results of the Flight Support Group.

Speaker 1

Thank you very much.

Speaker 2

I would like to take a moment to recognize and welcome the Wencore team members to the HEICO family. The Wencore team is a perfect And highly complementary fit with the HEICO culture, and I'm extremely optimistic about the future of Wincor's contributions to the Flight Support Group's future. I must say that over the last number of months, I've gotten the chance to visit most of the Wencore facilities, And I've been incredibly impressed with the caliber of team members that Wincor has. We had very high expectations for them prior to closing the acquisition, but they continue to amaze everyone and really perform outstandingly well. It really is a privilege and an honor to have gotten to know these people.

Speaker 2

And also, I'd like to thank The HEICO team members for being so welcoming to their new Wen Kor brothers and sisters and bringing them into the fold Because as a team, we can accomplish so much more than we can individually. The HEICO team members have been phenomenally excited About the Wencor acquisitions, we've done about 100 acquisitions, but I can say that this one really has generated incredible enthusiasm And I am just absolutely honored to work with both the HEICO and the 1Core team members. We've got a phenomenal group. And I think the results really speak for themselves with a lot more to come. So, again, thank you very much To all of our HEICO Flight Support team members for an incredible performance in the Q4 and full 2023.

Speaker 2

On to the results, the Flight Support Group's net sales increased 74% to a record 601,700,000 in the Q4 of fiscal 'twenty 3, up from 346,000,000 in the Q4 of fiscal 2022. The net sales increase in the Q4 of fiscal 2023 reflects 185 $700,000 from WENCOR and strong organic growth of 20%.

Speaker 1

The Flight Support Group's

Speaker 2

operating income increased 47 percent to a record $114,600,000 in the Q4 of fiscal 'twenty 3, up from $77,800,000 in the Q4 of fiscal 'twenty 2. WENCOR's operating income in the Q4 of The previously mentioned net sales growth and an improved gross profit margin, partially offset by $12,700,000 of Wencor acquisition costs and $11,800,000 of Wencor's intangible asset amortization expense and higher performance based compensation expense. The improved gross profit margin principally reflects higher net sales within our aftermarket replacement parts and repair and overhaul parts and services product lines. The Flight Support Group's operating margin was 19% in the Q4 of fiscal 'twenty 3 as compared to 22.5% in the Q4 of fiscal 2022. The operating margin decrease in the Q4 of fiscal 2023 principally reflects the previously mentioned Wencor acquisition costs and intangible asset amortization expense.

Speaker 2

Excluding the Wencor acquisition costs and intangible asset amortization expense, the Flight Support Group's Operating income increased 79 percent to $139,100,000 in the Q4 of fiscal 'twenty 3 and the operating margin was 23.1%. Now, I would like to introduce Victor Mendelson, Co President of HEICO and President of HEICO's Electronic Technologies Group to discuss the 4th quarter results of the Electronic Technologies Group.

Speaker 3

Thank you, Eric. The Electronic Technologies Group's net sales increased 28 percent to a record $342,500,000 in the Q4 of fiscal 'twenty three, up from $268,500,000 in the Q4 of fiscal 'twenty two. The net sales increase principally reflects the impact from our fiscal 'twenty three and 'twenty two acquisitions as well as 6% organic growth. The organic net sales increase in the Q4 fiscal 'twenty three mainly resulted from increased net sales of Defense, Space and Commercial Aviation Products, partially offset by lower net sales of other electronics products. We're pleased to see 26% sequential growth in defense product net sales in the Q4 of fiscal 'twenty three over the prior quarter, which now marks our 3rd consecutive quarter of defense related net sales growth.

Speaker 3

The Electronic Technologies Group's operating income increased 8% to a record $86,400,000 in the Q4 of fiscal 'twenty 3, up from $79,900,000 in the Q4 of fiscal 'twenty two. The operating income increase in the Q4 of fiscal 'twenty three principally reflects the previously mentioned higher net sales volume, partially offset by higher costs from the Accellia acquisition, higher performance based compensation expense and unfavorable changes in the estimated fair value of accrued contingent compensation. The Electronic Technologies Group's operating margin was 25.2% in the Q4 fiscal 'twenty 3 as compared to 29.7 percent in the Q4 of fiscal 'twenty 2. As acquisitions intangible amortization is equal to Approximately 400 basis points from our sales, we view that our ETG businesses achieved a roughly 29% margin from their what we consider to be their true operational activities, which is excellent by any measure and we're very happy with it even if it is not as high as it was before. I also note that in last year's Q4, we recorded A $3,000,000 gain from contingent consideration reversal.

Speaker 3

So last year's 4th quarter operating Income included that gain, while this year we had the opposite effect, which reduced the operating margin in total between the 2 years by around 140 basis points from last year's Q4. All of this is why I look at what we consider to be the business' actual performance before non cash acquisition accounting. And that, as I said before, is excellent in absolute terms. The lower operating margin In the Q4 of fiscal 'twenty three, as we said, principally reflects that previously mentioned higher costs from the Exelix acquisition, the unfavorable changes in the estimated fair value of contingent compensation and higher performance based compensation. I turn the call back over to Larry Mendelson.

Speaker 1

Thank you, Victor. Now for the outlook. As we look ahead to fiscal 'twenty four, we anticipate net sales growth in both the Flight Support Group and the Electronic Technologies Group, And that will be driven by contributions from our fiscal 'twenty three acquisitions, as well as the demand for the majority of our products. Additionally, continued inflationary pressures may lead to higher material and labor costs. We plan to actively work on Wencor's ongoing integration into our business and operations, Continue our commitment to developing new products and services and further market penetration, while maintaining our financial strength and flexibility.

Speaker 1

Our operating margins, especially before nonrecurring acquisition expenses remain extremely healthy and reflect our strong business operations. We believe that our ongoing conservative policies and strong cash flow enable us to continuously invest in new research and development and to take advantage of strategic acquisition opportunities, which collectively position HEICO for success in the markets that we serve. In closing, I would like to again thank our incredible team members for their continued support and Commitment to HEICO. Their persistent drive and determination to win in the marketplace has resulted in another quarter of outstanding results. Thank you all team members for everything you do to make HEICO a great company.

Speaker 1

And now Samantha, I'd like to open the floor for questions.

Speaker 4

Thank you.

Operator

And we'll take our first question from Robert Spingarn with Melius Research. Please go ahead.

Speaker 5

Hi. Good morning, everybody.

Speaker 1

Good morning, Rob.

Speaker 5

You put up a terrific quarter. You're so far ahead Of 2019 where everybody else is trying to get even on an organic basis, I'd like to start there with Victor And just talk about this 26% sequential growth, Victor, if you could and characterize what's behind that. Is that Across defense, is it a few specific programs that have started to move forward?

Speaker 3

Hey, Rob. It's good to talk with you. And it's a good question as always. So I think our strongest market right now and what's the biggest driver has been commercial aviation. And we have a few businesses in the ETG that have been particularly strong as a result of multiple factors.

Speaker 3

Some of it's the recovery in air travel, some of it's new products that we've introduced, some of it is also some efficiency initiatives And some of its acquisition related. So it's a broad mix there. Defense is definitely moving in the right direction for us as well. And commercial space is holding in pretty nicely overall for us. There are pockets of weakness here and there, but overall, it's pretty good for us.

Speaker 3

I would say the headwind for us, And I mentioned this before, I think over the last year, I signaled this probably a year or more ago that I thought some of our high end Non aerospace and defense markets would start to turn down this year and those have been more difficult. So those markets that serve Some high end electronics, medical and markets like those are definitely trending in the opposite direction. And I would expect that will continue for some time and I think we'll see the effects of that Over the next few quarters actually, Q1 in particular, and as we go on into the year before that starts to reverse. And that's Principally a result of probably overly aggressive ordering by customers during the supply chain crunch, dealing with the same kinds of things that we were dealing with. They wanted to get out ahead of it.

Speaker 3

And now the deliveries are coming in and some of their orders may be slower. So, they have to correct their inventory levels.

Speaker 5

Okay, understood. Thank you for that color. And then the next one moves over to FSG. So Eric, this is either for you, it could be for Carlos. But if we look at the 8 ks that you filed Back in mid October, it looks like Wencore sales outgrew overall organic sales For FSG, I mean, the numbers look like they could be 40% or more.

Speaker 5

It's not an exact comparison because it's an October Quarter versus a December quarter. But I wanted to ask if that math is correct. And if so, what's driving that Strong performance and can it continue for Wencor?

Speaker 2

Hi. Good morning, Rob. This is Eric. So, I'll start out answering that question and then Carlos will Fill in with some of the details. WENCOR has performed exceptionally well, as have Frankly, all of the HEICO Flight Support businesses, they're ahead of plan, they're doing very well, working incredibly hard And very similar in culture to the HEICO Group in terms of Being conservative in what they predict and frankly outperforming.

Speaker 2

I'm not sure that the numbers That you state are let's see what Carlos has to say about it. My sense is there, WENCOR is growing at a Similar rate to the HEICO Flight Support aftermarket businesses. But, I'll let Carlos Fill in on that.

Speaker 6

Yes, Rob, this is Carlos. I would say that you have to remember that when we put the 8 ks out, we had Pro form a sales in there, which as you know, went for some acquisitions early in 'twenty three.

Speaker 2

Okay.

Speaker 6

So that's probably why you're seeing sort of exponential growth. I really to be honest, I haven't gone back and calculated the organic because we just bought them. I will tell you that we were counting on about $724,000,000 in pro form a sales. If you just divide that before, we would $181,000,000 They delivered almost $186,000,000 So, we're pleased with the sales growth. I would say that Q4 is typically a little bit We're richer than some of the other quarters when it comes to aerospace sales.

Speaker 6

So, none of this is unexpected. But No, they had a great year and to Eric's point, they are performing at the same rate that the overall FSG is, particularly in the parts business.

Speaker 5

Okay. That's super helpful. And just on all of this growth and on the complementary nature of the 2 groups, Eric, how are you doing with the cross selling effort? Has that started to get traction? And what might we expect from

Speaker 2

Yes. I would say that we have started the effort and it's borne fruit. There are a number of projects that the companies are Cooperating on. The HEICO style is very much to let our new acquisitions They continue to run as they have, so we can really make sure that we fully understand. I can tell you that a lot of the businesses are cooperating, figuring out Product rationalization, how to maximize sales opportunities.

Speaker 2

There are a number of projects That are moving forward. But I would say that that's something that we're going to be getting into more heavily in 2024.

Speaker 5

Great. Thank you so much.

Speaker 2

Thank you, Rob.

Operator

And our next question comes from Pete Skibitski with Alembic Global. Please go ahead.

Speaker 7

Hey, good morning, everyone. Happy holidays. Maybe another one for Eric or Carlos, but Eric, I think what you called out for the kind of the adjusted FSG margin was over 23%, Which is really strong and I don't know how much seasonality factored in there, but I would also think you'd have some pricing power in 2024 because Some of the bigger suppliers, I think, have called out high single digit pricing increases for 2024. So it seems like you've got some wiggle room there, even though I I know you guys don't like to be too aggressive, but so is something approaching 23% reasonable All in for 2024 in FSG or are there other factors that we should I know Lawrence called out inflation and that sort of thing. How do you think it nets out next year?

Speaker 6

Let me take that one, Eric. So hey, Pete, this is Carlos. You have to remember that we have a pretty big amortization slug coming in from the WENCOR acquisition. So that's going to Tempered some of the just going to temper the GAAP margin a little bit. I think that it's going to be a little lumpy throughout the quarters, but I wouldn't get too far out over your skis.

Speaker 6

I've been talking about the segment doing around 21% margins when things settle, when we sort of settle into our footprint. And I think as we're looking forward, That might be a good barometer. We haven't given guidance, but that's kind of what I'm thinking that 2024 is going to look like right now.

Speaker 7

Okay. Just curious oh, go ahead.

Speaker 2

I'm sorry. And Pete, this is Eric. To add, you had asked about pricing. Yes. There's no question that we've got pricing upside potential.

Speaker 2

However, it's really been our philosophy to pass along our Cost increases. And so, that's what we've been focused on doing to be able to maintain our margins and to continue to provide a lot of opportunities for our customers. So I think that there is a very large potential There, one of the things is, as someone is not buying a part and the OEM has raised the price on the part, Then as new customers come in and start buying that part, they pay higher prices. So, in a sense, we do get some pricing But we are being very good to our existing customers and we're looking very much at Our cost increases and cost increases have been significant in a number of areas. I don't need to tell you about labor and material.

Speaker 2

And we have been successful in passing along those cost increases because it's something that we've got to do in order to maintain our margins. As far as the overall operating margin before intangible amortization, I think that We'll continue to perform as we have in the past. I'm quite pleased with our performance in the past. And we've got a lot of very, very good things in the hopper, a lot of projects where Heiko and Ankur can work together on a number of things. So I'm very optimistic about the future.

Speaker 7

I appreciate it guys. And just so we're all clear on the amortization, I think you called out $11,800,000 in the 4th quarter. What's kind of the run rate you're expecting in 'twenty four that flows through FSG?

Speaker 6

That would be the quarterly are you talking about for just Wencor or for the whole segment?

Speaker 7

Well, I think the $11,800,000 we referred to was when core purchase intangibles amortization. So I'm just wondering that number, how that runs through 2024?

Speaker 6

So, it should be about that much each quarter. I will caution you that we're in the middle of purchase accounting and valuations and all that kind of stuff. So, it could move A few ticks to the right or left, but that's what we're not counting on for next year each quarter, about $11,800,000

Speaker 7

Okay. Appreciate it. Thanks, guys.

Operator

We'll take our next question from Bert Thewagens with Stifel. Please go ahead.

Speaker 8

Hey, good morning and thanks for the question.

Speaker 1

Good morning.

Speaker 8

Maybe just Follow-up on that margin question. If we look at FSP margins being dilutive to HEICO, just given where ETG margins are, And you noted last quarter Whentcor was in line with FSG excluding the amortization piece, which seems to be the case based on your prepared comments, Eric. When you put that together with the synergy opportunity and the broader parts pricing opportunity that we've seen on the OEM side, Do you think there's a path to overall operating margins getting back to or above FY 'twenty two levels in the next, let's say, 3 years?

Speaker 2

Well, so, when we look at this past year for the Flight Support Group, in 2023, Our operating margin, even after the one time expenses, was about Roughly 22%. So, we are going to have some additional Headwinds as a result of the intangible amortization. But, I think that When you add back the intangible amortization, you get into around the 23% area Within the Flight Support Group. So, I do think that we yes, when you add back the intangible amortization and M and A So, I do think that there is additional opportunity for us. But again, as I said, we want to be very protective and make sure we take care of our existing customers who have been buying The existing parts, but there is no question that there is pricing opportunity.

Speaker 2

I mean, if somebody has not purchased a Apart from us, our list price would escalate and they would not be able to Pay the same price for that part as somebody who had been buying it for a long time. So, yes, I think that we do have Pricing opportunity on the upside. I want to be careful not to get too far over my skis here because again we are very Customer friendly, but I do think there is pricing opportunity.

Speaker 8

Okay, great. And then just as a, I guess, a higher level follow-up. You've called out commercial aviation in that end market as being strong. Boeing and Airbus clearly talking about driving toward Target production rates that are much higher than today's rates over the next couple of years. Assuming that plays out based on sort of what you know today, how would you expect Commercial aero end markets to change, do you think they remain fairly similar over that period?

Speaker 2

Yes, I think they remain fairly similar. One of the things that happened for us during the COVID crisis is We got rid of a lot of old aircraft at one time. So instead of having those headwinds, those headwinds as those older aircraft would have been hired over time, we got rid of them all. So, if you look at our sales Today, there has been a significant upgrade in the Improvement in our fleet age and distribution. So, I think that the aircraft that we're servicing today are going Out there for a long time, they continue to age 1 year per year and their price points are very positive for HEICO.

Speaker 2

So, I think that we're going to have the wind to our backs for many years. Thanks so much. Thank you.

Operator

We'll take our next question from Ken Herbert with RBC. Please go ahead.

Speaker 9

Yes. Hi. Good morning, everybody.

Speaker 10

Good morning, Ken.

Speaker 9

Hey. Maybe a question, Eric, for you to start off. If you look at HEICO now with Glencore and the combined business, can you talk organically perhaps how much you'd expect your Your PMA portfolio, for instance, to grow into 24 or 25. I guess I'm just curious about what kind of share gain What opportunities you're seeing in PMA in particular and how you're investing to support that?

Speaker 2

Yes. We both HEICO and WENCOR performed very well in terms of new PMA generation. We're continuing to invest, continuing to find new opportunities. So, I mean, without doubt, this is going to be a record year in terms of PMA generation and the number of parts that we can come out with. I can tell you that I've met with a number of customers since Onecor has closed and they are really They want us to do more.

Speaker 2

Again, there's going to be plenty of business for the OEMs. There's more than enough business to go around, but they clearly have seen after going through a supply chain constraint like we've seen over the last couple of years, not only does HEICO bring cost savings, But we also bring availability. And that is a very, very key part of our value proposition. So that is driving them I want to continue to develop more parts with us and why I'm so bullish on it. I mean, obviously, we're not going HEICO OneCore won't develop the same parts, and we can have each of the business units Focus in areas where they have a competitive advantage and that is our plan to be able to broaden the amount of product that we to bring to our customers.

Speaker 9

Okay. That's very helpful. Thanks, Eric. And maybe Carlos, as you look at the Wengcor business, To the extent to which it's still sort of standalone or independent somewhat, how is the cash generation profile of that business relative to legacy HEICO and is there an Maybe keep some better cash generation out of the Wancorp business.

Speaker 6

Ken, it was a little hard to hear that, but it sounds like You're wondering how we might be able to squeeze more money out of WENCOR. Is that essentially your question?

Speaker 9

Exactly. Yes, sort of

Speaker 6

So I think that on a cash flow basis from an EBITDA perspective, They're doing quite nicely. They're ahead of our expectations. I think that as we coordinate operations and coordinate Our sort of consolidation of some back office things, there may be some savings there. As I mentioned to you before, We're not going to disrupt operations right now with any consolidation moves because our end markets are too hot and candidly, they're doing great. And I think that if they continue to do what they did this quarter, we'll be very happy.

Speaker 6

They're not consuming a lot of working capital at the moment. That's all a positive going forward in 'twenty four.

Speaker 9

Great. Well, thank you very much. You're welcome.

Operator

We'll take our next question from Scott Dezel

Speaker 11

with Deutsche Bank. Please go ahead.

Speaker 12

Eric, can you talk a little bit The munitions growth at FSG, maybe kind of what the growth has looked like over the last year than what the outlook is going forward into 2024?

Speaker 2

I'm sorry, can you just the growth of which product line?

Speaker 12

The munitions product line, I think in specialty products. I think it was a big driver of growth in the first half of this year.

Speaker 2

I'm just curious to

Speaker 12

see a little more granularity there. Thank you.

Speaker 2

Got it. Yes, I think what you're speaking about is the missile defense Products that we're doing. And there's a lot of there's been a tremendous amount of growth, as you can imagine, in that area. Everybody has been significantly underinvested in it. And for that reason, we're very optimistic on it.

Speaker 2

Within our specialty products business, we are adding capabilities And space and people to a number of those businesses. So, there is a fair amount of, I would say, one time Costs that we're anticipating in 2024, but we're going to be able to cover it Within our normal margins. But, the business is very strong. And I think that we've really carved out a niche For ourselves in many areas in the defense products.

Speaker 8

Okay.

Speaker 12

And then Eric, you talked earlier about price and availability being 2 of the differentiators for what allows you to get the sale on a PMA part. But it seems like another one is that the PMA part is often just a better part. So I'm curious if you could talk a bit about that and how frequently the product itself, Capabilities of the product are what drives the sale as opposed to just the price and availability piece that you mentioned earlier?

Speaker 2

Sure, Scott. I'd be happy to. So, in order to get PMA, it's got the part has got to be the same in terms of form fit and function. So, therefore, yes, the way that we are able to differentiate ourselves with With respect to quality is we typically have tighter tolerances, so we produce more consistent parts. And we also have an extremely robust quality inspection program.

Speaker 2

So, when parts come in from vendors, Whether they are HEICO vendors or outside vendors, there's a very robust material analysis, Whether the parts metal or not metal to confirm grain size, microstructure, hardness, coatings, All of those various constituents to ensure that the part that we ship out is exactly what was Likewise, we have a very robust inspection process to review the dimensions. So, I would say that with regard to Basically shipping the part according to the design intent, HEICO score is incredibly high in that area. So, the parts are more consistent. Airlines are able to basically use them and install them right away. And the fallout or rejection rate with HEICO parts, we believe is significantly lower than with other companies' parts.

Speaker 2

So, they are improved in that regard. We do offer some parts that are Improvements where material or dimensions can be changed, but that is a smaller part of our business, But that's also an area of opportunity for us.

Speaker 12

Okay, great. And then last question, Carlos, Can you give any kind of framework for how to best think about ETG margins for next year? Is something in the range of 24% to 25% A good kind of base case framework to think about 2024? Thank you.

Speaker 6

Well, I can tell you this for the ETG. I think it's going to be lumpy. I think the defense sales look like they have turned to our benefit. But we have, as Victor mentioned earlier, we have a lot of high end The liability parts that are going to non aerospace, defense and space areas, that business We believe we'll calm down a little bit. So, the margin is going to go all over the place.

Speaker 6

I would say if you're at 24%, You're probably in the right ballpark for the year. But I wouldn't I would let us get a couple of quarters underneath this Before we commit to a margin because again I think based on backlog and what we see right now, it's going to be a little lumpy going into next year.

Speaker 12

Great. Thank you.

Speaker 13

You're welcome.

Operator

And we'll take our next question from Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker 4

Good morning, guys and thank you. Maybe just continuing on that line of questioning with NTG profitability. Victor, can you talk about Exelio? Just provide us with an update there, the performance of what you're seeing in terms of the underlying profitability profile of the business and kind of how that tempers into your fiscal 'twenty four expectations as what just Partly just said as well as beyond that period?

Speaker 3

Sure, Sheila. So, Akcelya has been doing pretty much exactly what we expected it to do, more or less right on plan. The business has been growing. And as we've said before that it penalizes our operating margin by about 200 basis points, and I would expect that to probably continue to be the case. I would expect their margins will march up a bit over time, but not to the level of the rest of the ETG.

Speaker 3

So, we're very happy to have the business. They have mined out a lot of new opportunities. They're working on other Opportunities beyond that, continuing good product development, producing out their backlog, which has been very strong. So, overall, very happy and very happy with the people there.

Speaker 4

Okay. Thanks for that color. And maybe Eric, one for you. I know you got lots of questions on price. Anyway you could quantify cumulative price over the last since 2019 for us?

Speaker 4

And Also, any thoughts on the GTF issues and how you think that will potentially benefit HEICO's PMA portfolio?

Speaker 2

Hi. Good morning, Shao. Great question. With regard to price, actually, I don't have that information in front of me. And Due to HEICO's decentralized nature, it would be very difficult to pull all of that together.

Speaker 2

But, I would say that in general, We have not as I said before, we have not pushed price beyond our cost increases. So, therefore, customers who have been purchasing the parts for a long time Have been treated very well and it's our plan to continue doing that. But of course, new people buy the parts and they haven't purchased the parts The past, they paid the newer price and that would reflect increased prices as our labor and material costs Have gone up. So, and then, with regard to the GTF, I assume that will keep the existing fleet in great demand for a long time. It's going to take a while to work Through the GTF problems.

Speaker 2

And I have no question that they'll ultimately get through them. But in the meantime, that Should be really a very strong indicator, I would say, for the aftermarket. And fortunately, these aircraft are Able to pick up the slack. So, I think that that's working out quite nicely. Originally, We always said that whenever you got a recovery, there's always a little bit of an overshoot.

Speaker 2

Well, it looks like perhaps as a result of the GTF issue, That overshoot may either be delayed or won't happen because There is just increased demand. Our backlogs are tremendous. Our suppliers are challenged to keep up. I think we're doing better than most in that regard, but there is tremendous there continues to be tremendous demand for our products And services.

Operator

We'll take our next question from Michael Ciarmoli with Truist Securities. Please go ahead.

Speaker 14

Hey, good morning guys. Nice results and thanks for taking the question here. Hey Carlos, just can you give us Any more maybe clarity or direction on the revenue growth outlook for 'twenty four? I mean, I know you called out in the press You expect growth in FSG and ETG assuming FSG will be lapping a tough Comp on the 20 percent organic, so maybe unlikely to see acceleration there, but I would think with ETG and Defense Kind of showing that sequential improvement, we get some acceleration off this 1%. Can you maybe give us a little bit more detail on kind of The top line growth expectations?

Speaker 6

Well, I mean, as we're sitting here today, Our growth is going to be solid next year from acquisition revenue. If you're referring to organic, you are right, we're lapping 20% plus growth quarters for 2 years now. So, I think what in the FSG. So, I think That will be I don't think it will continue at that rate, Michael. I mean, it could, but I'm not anticipating that.

Speaker 6

I do think it peels back a little bit, not a ton, but it will peel back. I think the ETG's growth is going to be quite lumpy based on what we see in backlog right now. And I think with the ETG, If you're counting on the organic side, look to the low to mid single digits. FSG should be high single to double digit, something like that. It should continue a nice growth for next year.

Speaker 14

Okay, that's helpful. And then just back to the FSG margins, I guess, as you guys think about Kind of the integration plans, WENCOR had been running at 15.8%, give or take. But where do you think you can take Those margins and I know Carlos you called out a couple of times the amortization from Wencourt 11 $800,000 flowing through, but what was the other amortization as well that flows through there to kind of get you to That 23%, just want to make sure we've got all the math correct.

Speaker 6

Michael, are you talking about just Wancor or the segment?

Speaker 14

The first question was just on Wancor. The second Was this segment in total at that 23%?

Speaker 6

So, I think that Percent of sales you're going to run 2%, 2.5%, I believe is the number for amortization in the segment. And OneCore is part of that and like I said, you're close to $12,000,000 a quarter for OneCore and amortization. So that's what we're looking at next year.

Speaker 14

Okay, got it. And then any thoughts on where you could take Those 1 core margins like just that from that 15.8% level as you guys integrate and kind of go through the process?

Speaker 2

So, Michael, this is Eric. Let me see if I can help you out with that a little bit. If you take The Wincor operating income for the quarter of $29,300,000 and then you add back The $11,800,000 of intangible amortization, then you get to a number of about $41,000,000 for the quarter. So, when you divide that $41,000,000 by the $186,000,000 approximately of 1 quarter sales, Get to about a 22% margin adding back the intangible amortization. So, if we're saying that HEICO is fight support group is going to be in the 23% area for this coming year, 1 Corp based on the 4th quarter was just a tick below that.

Speaker 1

Okay.

Speaker 2

Just but it's so I would say it's very similar to HEICO.

Speaker 14

Okay. Okay. That's helpful. Perfect.

Speaker 11

Thanks guys. I'll jump back in the queue.

Speaker 2

Thank you.

Operator

And we'll take our next question from Gautam Khanna with TD Cowen. Please go ahead.

Speaker 10

Hey, good morning guys.

Speaker 1

Good morning. Good morning, Gavin.

Speaker 10

I had a couple of questions. First, Eric, I was wondering if you've seen any Differences in demand by channel. Wengor, I think you guys said, sells more to the MROs, Whereas Heiko on the PMA side directly to the airlines, was there any discernible differences or changes in customer behavior between the two channels?

Speaker 2

No, I would say that there really hasn't been thus far. I think that that is an opportunity for us to mine as we go forward. And I think that that will be very much an opportunity. Again, WENCOR Has operated basically as a standalone business. Yes, we're coordinating some activities, It continues to operate with its own leadership and its own P and L.

Speaker 2

And but I think there will be opportunities such as the ones you're alluding to.

Speaker 7

Okay.

Speaker 10

And Airlines appear to be in some financial stress incrementally. I'm just curious, has that Have you seen any increase in the number of inquiries from non PMA buying customers that are now Looking to switch over or just you're seeing more volume among certain customers than you would expect at the airlines given So, the challenges.

Speaker 2

Yes, it's a great question. And there I mean, pretty much everybody uses PMAs, but there has been an increase In using parts that using HEICO parts that they haven't purchased in the past. And What is it? The old saying, necessity is the motherhood of invention. And sometimes, if people can't get apart from the OEM, Then they'll go ahead and then they'll buy it from HEICO.

Speaker 2

And we certainly have seen that happen. And as a matter of fact, it's particularly gratifying when you see OEMs Do that. So, and that's been I'm not going to get into specifics, obviously. But, it's very nice when we see OEMs purchasing the HEICO and the OneCore alternative parts in order

Speaker 10

Improvement that you saw sequentially. What is this a let up of past due backlog or is there is that not really a driver? And What can you say about maybe book to bill or any sort of discernible change in order trends among those customers?

Speaker 3

Yes. On defense, I think our book to bill is positive on defense and moving in the right direction. For our defense businesses, I would say Very little of it, if any, would be supply chain catch up. In fact, quarter in the whole quarter, Our companies estimate that maybe approximately $10,000,000 worth of shipments moved to the right, Right. So compare that to where we were, I don't know, roughly a year ago, I think we'd reached In the $40,000,000 range or even higher.

Speaker 3

So, that's definitely trended in the right direction for us. And I'm overall Optimistic on our defense business throughout the year. Again, as Carlos emphasized, it will be lumpy and the mix sensitivity It's important because we have some products, some subsidiaries, Which have a much higher margin than others and how that backlog falls out is very important. So I would expect, for example, the Q1 on margin side to be tougher for us than the following quarters.

Speaker 10

Last one, if I may, just back to Eric. On the number of PMA parts you expect to introduce between The 2 entities, Legacy HEICO and WENCOR, maybe you could just update us on that over the next year?

Speaker 2

Yes. I think HEICO has been running in that 300 to 500 area, roughly 400 parts a year. And Wencore has been running in about 150 area. So, I would anticipate Those numbers continuing that way.

Speaker 10

Great. Thanks a lot guys. Happy holidays.

Speaker 2

Thank you very much. Happy holidays to you too.

Operator

Thank you. And we'll take our next question from Louis DiPalma with William Blair. Please go ahead.

Speaker 15

Larry, Eric, Victor and Carlos, good morning.

Speaker 1

Good morning. Good morning, Louie.

Speaker 15

When discussing the Wencore deal, Wencore's e commerce platform was touted as one Of the unique assets with potential synergies, has HEICO started the process of selling Any of the HEICO parts on the WEN Core online marketplace? And are there many revenue and cost synergy Projects planned for 2024 or is that more of a 2025 event? Thanks.

Speaker 2

Yes. This is Eric. I'd be happy, Louie, to answer that. As I mentioned, the Heiko philosophy when we Acquirer business is just to leave it alone and observe what's going on. We've got our initial And then, we want to make sure we confirm that first before making substantial changes.

Speaker 2

So, yes, Ownership period at Wencor has gone extremely well. And we are working on a number of projects In terms of product rationalization, sharing resources between the businesses, sending business to Heiko Wencour, which used to go outside. So, all of that is going well. Specifically, with regard To the e commerce platform, we think that that's going to be an opportunity for 2024. It's something that we're looking at right now.

Speaker 2

We continue to believe very much that's going to be a huge asset. They are studying the best way to go ahead and do that. But no, we have not done it to date, not because we don't want to do it, But because frankly, both businesses are running at such a high percentage of utilization that we don't have People to be able to focus on all of the projects that we're just sort of taking them as we can handle them. But, We believe that that's going to be a tremendous benefit for us in 2024.

Speaker 15

Great. And following up on that, in terms of the cost synergies then, you said that you plan to let Wencora operate in a standalone mode. Should we think of synergies more as a 2025 event then? Like how long Would you generally plan to let it operate in a standalone mode?

Speaker 2

Well, I think the revenue synergies Are going to start accruing quickly. And then, as far as Some of the cost synergies, the business units are taking it upon themselves to work together and to find areas where they can rationalize product lines. If one business does more of a particular product than another, they're looking at swapping. So, this way, we can maintain the workforces. We've got tremendous volumes and all the businesses are running at a high Utilization factor.

Speaker 2

So, but if we can redirect people to more efficient activities, we want to do that. So, We are taking advantage of the revenue synergies and of some of the cost synergies. But I would say that that's going to be something that benefits us in both 2024 and 2025.

Speaker 15

Excellent. Thanks, Eric, and thanks, everyone.

Speaker 2

Thank you.

Operator

And we'll take our next question from Larry Zallo with CJS Securities. Please go ahead.

Speaker 11

Great. Thanks. Good morning, guys. Most of my questions have been answered. Just And one, I guess, just on free cash flow, a couple there.

Speaker 11

Sort of your without getting specific guidance, sort of your general outlook on free cash flow In terms of working capital needs, do you expect maybe to have to build a little more inventory? How do you think that's going to shake out? And then Part 2 of that question would be kind of priorities for free cash flow. A little more leverage than you guys are used to. So I'm just curious would that number one priority be sort of debt pay down Maybe in front of even strategic acquisitions?

Speaker 11

Thanks.

Speaker 6

So, let me take a stab at that, Larry. It's Carlos. I think that on the as you mentioned, the inventory side, we did have a significant investment, 23,000,000 in inventory. And I suspect that for a few quarters into 2024, we might have a little bit more inventory build. Part of that is due to firm commitment orders we place Sometimes as much as 2 years ago to deal with the supply chain challenges to make sure we had product on the shelf for our customers.

Speaker 6

But I do think that carrying cost and inventory isn't free anymore, right? Rates are up. So, we're very cognizant of that. And I do think as we get into My hope is that towards the back half of the year, we get a little bit more rationalization on the working capital usage. That's my expectation.

Speaker 6

As far as free cash flow, I expect the company to continue to have strong free cash flows. And I do think you've hit the nail on the head Once the working capital investment to support the growth and some of these firm commitment orders has tempered, I think our conversion will be slightly Does that answer your question, Larry?

Speaker 11

Yes, absolutely. And I guess just priority, That pay down is that probably

Speaker 6

Yes. Look, our objective right now, as we stated before, To try and delever as quick as possible. Our plan after completing the Winokor acquisition within 12 to 18 months, We set out on a plan to get our debt leverage ratio something close to normal, around the 2 range roughly. That's the goal of the 12 to 18 months. I would say that that is not a goal that prohibits us From doing acquisitions, I would say that for smaller acquisitions, we will We're on our line to do what we need to do to complete those if they're good for our shareholders.

Speaker 6

I think if they're larger deals, we might have to get creative, but I don't expect that Over the next 12 to 18 months, something as large as Wynn Corp probably would be very unique. I don't know that we've got something on the horizon right now. And I do think to your point that deleveraging is sort of our highest and best use of free cash right now.

Operator

And we'll take our next question from Ron Epstein with Bank of America. Please go ahead.

Speaker 16

Good morning, everyone. This is Mariana Perez Mora on for Ron today.

Speaker 10

Hello. I'm going

Speaker 16

to ask the big picture question. Larry, in your prepared remarks you highlighted you have never been more optimistic about HiCo's future than you are today. When you think about the year ahead, what are you most excited about? Is the industry? Is the particular end market?

Speaker 16

Is Haikos competitive position?

Speaker 1

I think all of the above in other areas too. I think that the WENCOR acquisition puts us in a very unique spot. As we've told you today, it's actually working out better than we anticipated. To HEICO, the culture of the company is critical. And I can tell you as a large acquisition like WEN Having that excellent culture is really a wonderful thing.

Speaker 1

We have learned I am a financial person originally, Started as a CPA long ago and finance is very important and we key on that of course in cash. But when I look at our cash flow and I look at our culture, the culture is what ultimately drives the bottom line. So, this is very, very good. On the other hand, the Axcelia acquisition is come off Almost exactly what we expected. So and we expected it to be good and it is good.

Speaker 1

So when I look at all these things and the size of the company, I also believe that as a matter of fact, I've said many times that we have a goal of growing 15% to 20% bottom line. And in 'twenty three, if you add back those Non recurring expenses that we incurred, the legal, investment banking and so forth for the acquisition, We grew about 20% over the prior year 'twenty two. I feel very confident That in the current year, we will be able to grow 15% or 20%. We don't give guidance, but Clearly, we focus on our budgets and where we think we will wind up. But I feel Knowing everything I know now that we will be able to repeat a 15%, 20% growth.

Speaker 1

And then that's after Making these sizable acquisitions and digesting them. So HEICO is a much stronger, bigger company And it has ever been. I mean, it's a major factor today in this in the industries we operate. So for all those reasons, I would say HEICO has become a powerhouse. And for those reasons, I feel Extremely confident of the future for HEICO.

Speaker 1

Does that answer your question?

Speaker 16

Yes. Thanks so much. And then When you think about potential challenges, what gets you up at night? Like, what are you like paying close attention

Speaker 1

to? Well, the only thing that I worry about is exogenous events, which we can't control, More strange things like this. But as far as the operation of HEICO, I am highly confident because we have Great depth in management. In other words, since we're a company that's not consolidated, we're diversified And we leave the decision making down at the level where we believe it belongs. The corporate doesn't tell The operating entities what they have to do.

Speaker 1

We say to them, what do you think we should do and how will you accomplish And to that extent, I have great confidence. These are people who have been running these businesses for many years. Nobody, in my opinion, nobody knows their market, their labor market, their customer market Better than the people operating the businesses. So and they've done it over and over and over again. So, it's not as though, well, This is something new.

Speaker 1

Can they do it? Can they accomplish it? No. They've been doing this for many years. I mean HEICO has a record of growing Over 30 some years, the bottom line close to 20% compounded growth.

Speaker 1

So, because of that, I have great, great confidence In what they're doing, I mean, Eric and Victor run those companies and they go out and they meet with the business unit leaders constantly. They speak to them by phone. Carlos has an extremely Detailed financial report weekly, so we keep track of the receivables, the growth, the backlog, cash flows, everything. So, for all those reasons, I really don't worry about the operation of our company. I just worry about Well, I don't worry about it because I can't control it.

Speaker 1

But things like COVID, wars and things like that, which might impact us, but I can't change that. I think we've done as well. Eric, Victor And our team members have done as well as can be done with the company in terms of operations And control. So, none of those things worry me.

Speaker 16

Perfect. Thanks so much. And then, if I may, one last question for Carlos. Could we please dig deeper on M and A? I'm curious if you could discuss the two sides of it, like number 1, like pipeline of Opportunities and like how add any color on pricing there.

Speaker 16

But also you mentioned deleveraging. What is the target deleverage and I'm curious how and if the an easing interest rate environment influences that target?

Speaker 6

Clearly, higher interest rates causes me to want to pay down debt quicker, right? I mean, that's kind of our mode of operation here. Within the next 12 to 18 months, I'm targeting somewhere in the low two times and that gets us close to historic norms which have been somewhere Slightly lower than 2%. That was the goal when we set out and that's what our objectives are. As far as our M and A backlog goes, we have a very active Process, both segments have teams that are focused on markets and opportunities.

Speaker 6

It's very opportunistic. And as I mentioned earlier, There'll be those handful of deals that we see every year, which I would probably categorize as smaller, $100,000,000 spend and less and things like that. We'll find deals like that all day long and if it makes sense for our shareholders, We'll pull the trigger. That won't damage our plan to delever. But as far as larger deals Such as a line core where we spent over $2,000,000,000 I would think over the next 12 months to 18 months that that would be unlikely that we would pursue something like that until we delevered a bit.

Speaker 1

Thank you. Thank you. You too.

Operator

And we'll take our next question from Jan Franz Engelbrecht with Baird. Please go ahead.

Speaker 13

Eric, if I can just sort of a high level question. Just over the next 12 months, In terms of slide activity across narrow body, wide body and then sort of North America, Europe and China, if you can just let us know how you're thinking about Sort of potential areas of strength and potential regions whether it's probably a watch item for your business for the aftermarket?

Speaker 2

Yes. We're seeing strength, frankly, across the board. We dive down into the part number level. So it's just very, very Broad based strength straight across the board. So, I wouldn't want to call out One area or another.

Speaker 2

It's really just very strong across the board.

Speaker 13

Good. That makes sense. Thank you. And then if I could just have a quick follow-up. Victor, I think you may have I answered this with ETG.

Speaker 13

But if you could just talk about sort of the supply chain outlook in 2024 and beyond, so there's less of an impact. I think you guys mentioned $10,000,000 Does that keep on improving for the remainder of 2024?

Speaker 3

I would expect that to be the case. I think it's improved dramatically, but there's still room to go. Lead times Have improved. Of course, there are some products, there are some components, Particularly, the realm one would think of is chips, that's still Elevated and a little complicated. And I would say, even in ordinary times, as I reflect on it, I would expect that there will always be products and vendors that are delayed, but we wouldn't categorize it as a supply chain crunch like the world experienced before.

Speaker 3

And so I think it will return to normal sometime, I would expect, within calendar 2024.

Speaker 13

Perfect. Thank you. Thanks and happy holidays and congrats on a good quarter.

Speaker 11

I'll jump back in there. Thank you. Thank you. Thank you.

Speaker 16

And we'll

Operator

take our next question from Louis Riveto with Wolfe Research. Please go ahead.

Speaker 11

Thank you. Good morning, guys. Good morning. Victor, so it's great to see the FenceUp again. I guess, have we lapped Year over year growth yet?

Speaker 11

I know it was down high single digits last year or last quarter for Defense. I guess, was it up this quarter?

Speaker 3

Yes. It was up this quarter.

Speaker 11

Okay. Great. Thank you. And then, Eric, just can you help baseline the $186,000,000 of sales for OneCore between sort of the sub segments within FSG? Any way you could help us out there?

Speaker 2

I can't. I don't have that actually in front of me right now, But, it would fall broadly into parts and into MRO In terms of the disaggregation of revenue. But, I don't have that information in front of me at the moment. But I would say that we're doing very well in both of those areas.

Speaker 11

All right. Great. Appreciate it. And then, Carlos, just To make sure we're all based on, I guess, on the interest cost in the quarter, was there anything one time or should we think of this $40,000,000 level as Sort of going into fiscal year 'twenty four as the right level?

Speaker 6

Hi, Lois. That's a good question. So, within the interest line this quarter, We had $3,800,000 worth of one time cost in there related to the commitment letter to fund the WENCOR deal. So, going into there, we basically had to pay about $3,800,000 to get a bank to write a letter to say that we were good for the purchase price. That's the one timer.

Speaker 6

That won't repeat. So as you're looking forward next year, if you pull that out, you're looking $38,000,000 and then decreasing as we delever.

Speaker 11

Okay. And then I guess just Taxes, any way to think about taxes for next year?

Speaker 6

Yes. I hope they remain I'm planning on them to remain similar to what they were this year. I always kind of count on a 20% to 21% rate. This year we did a little better, it's because frankly the We have that leadership compensation plan where we have some tax deferred earnings that has a positive impact on our And because the market was generally up through 'twenty three for our fiscal year, that did help us as opposed to hurting us last year. So, I think if you're in the 20% to 21% range, you're going to be in good shape.

Speaker 11

Okay. And then just last cleanup on the intangible amortization. Like, was there No sort of one time step ups or anything like that, that $11,800,000 was, to your point, sort of the go forward rate?

Speaker 6

Yes, it was. The one thing about OneCore doesn't have what I'll call manufacturing base like we do. They outsource a lot of their manufacturing. So there wasn't Any manufacturing profit to pull out of the purchase accounting to pull out of the numbers? I mean, maybe a little bit in the repair side, but It wasn't anything notable, Louis.

Speaker 6

So, I would say that 11.8% is a pretty good run rate number.

Speaker 14

All right.

Speaker 10

Thank you very much.

Speaker 9

You bet.

Operator

We'll take our next question from Colin Newsome with Sterling Capital. Please go ahead.

Speaker 17

Hi, good morning and thanks for taking my question. I had actually one clarification for Eric and then one question for Carlos, if I may. Eric, on the GTF question earlier, could you just please clarify your impression of the materiality of that potential demand driver for Do you view that as an incremental needle mover for you all? And then, do you have any additional Certifications, etcetera that your subsidiaries perhaps need to attain to win that work and then You have the capacity to kind of take that on. And then for Carlos, just stepping back and thinking of the post Wencore and Exelio balance sheet that you're sitting on now, You're facing one of the most significant delevering processes in recent memory for HEICO and we've just witnessed a Significant and favorable change to financial market conditions in the last month or so.

Speaker 17

And while I'm no macro economist, Things could continue to favorably develop here in 2024. So I just wanted to ask about your thinking and has it changed at all regarding the cost or pace of this delevering journey that you're on. Any change to your thinking and or steps as you kind of prosecute that playbook? Thanks again.

Speaker 2

Yes. Colin, so I'll start out. What I was referring In response to the prior question concerning the GTF was that as a result of the GTF Powered aircraft being taken out of service in order to have their engines overhauled, That would create additional demand for legacy aircraft. So, I don't want to call that out as Anything more than a tailwind, but clearly is going to be good for the Use of the utilization of non GTF powered aircraft. With regard to HEICO's involvement in the GTF I would say that it is not material.

Speaker 2

We are not supplying PMAs on the GTF in any material quantity and Frankly, the service that's being done now is being paid by the manufacturer. So, that would not be A revenue opportunity for us. If we've got businesses that are supplying parts into the OEM, Then there could be a little bit of increased demand for that. But no, I would not call it out as A special one time item.

Speaker 6

Collyn, this is Carlos. I don't know that anything on the horizon is going to change my view on the delevering. In my mind, we've got Almost 10,000 team members and uncountly number of family members that are attached to those people and we want to make sure we have a battle hardened Company that has a lot of staying power. And so my objective with that in mind is to try and delever as quick as possible so we could de risk the balance sheet. I will tell you this.

Speaker 6

I mean, at net leverage of 3 times, it's not like we're highly levered. But for me, I'd prefer to be back down to So that's kind of the marching orders into the next couple of years and we'll see how it plays out. I can tell you we will not Miss opportunities that are good for our shareholders as a result of that plan, but the stated goals right now are to continue the thoughts of delevering.

Operator

And we'll take our next question from Jordan Liannis with Bank of America. Please go ahead.

Speaker 4

It appears

Operator

that you disconnected and we have no additional questions at this time.

Speaker 1

Okay. Well, thank you very much. I want to thank everybody who has been listening to this call. I hope we've satisfied you and give you The information that you would like, if not, we are available. As you know, give us a call, Eric, Victor, Carlos, myself, And we look forward to speaking to you in the Q1 call, which will be in a few months from now.

Speaker 1

And we wish all of you a very happy and healthy holiday season and New Year. And that's the end of this call.

Operator

Thank you. And this concludes today's call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
HEICO Q4 2023
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