For the quarterly period ended July 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File Number: 001-04604 HEICO CORPORATION (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXC ...

HEICO Corporation (NYSE:HEI) Q2 2023 Earnings Conference Call May 23, 2023 9:00 AM ET Company Participants Laurans Mendelson - Chairman & CEO Eric Mendelson - Co-President & Director Victor Mendelson - Co-President & Director Carlos Macau - EVP, CFO & Treasurer Conference Call Participants Robert Spingarn - Melius Research Peter Arment - Robert W. Baird & Co. Lawrence Solow - CJS Securities Gautam Khanna - TD Cowen Colin Ducharme - Sterling Capital Joshua Sullivan - The Benchmark Company George Bancroft - G ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents HEICO Corporation's unaudited condensed consolidated financial statements for the period ended April 30, 2023, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, acquisitions, and other financial information [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | ASSETS | April 30, 2023 (in thousands) | October 31, 2022 (in thousands) | | :--------------------------------- | :------------- | :--------------- | | Total current assets | $1,366,639 | $1,152,730 | | Property, plant and equipment, net | 273,856 | 225,879 | | Goodwill | 2,031,235 | 1,672,425 | | Intangible assets, net | 844,319 | 733,327 | | Other assets | 354,150 | 311,135 | | **Total assets** | **$4,870,199** | **$4,095,496** | | LIABILITIES AND EQUITY | | | | Total current liabilities | $466,828 | $420,859 | | Long-term debt, net | 735,779 | 288,620 | | Deferred income taxes | 94,468 | 71,162 | | Other long-term liabilities | 367,624 | 338,948 | | **Total liabilities** | **1,664,699** | **1,119,589** | | Redeemable noncontrolling interests| 345,833 | 327,601 | | Total shareholders' equity | 2,859,667 | 2,648,306 | | **Total liabilities and equity** | **$4,870,199** | **$4,095,496** | - Total assets **increased by** **$774.7 million (18.9%)** from October 31, 2022, to April 30, 2023, **primarily driven by** increases in goodwill, intangible assets, and inventories[9](index=9&type=chunk) - Total liabilities **increased by** **$545.1 million (48.7%)** over the six-month period, **largely due to** a **significant increase** in long-term debt[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over periods, including net sales, operating income, and net income Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | Three months ended April 30, 2023 (in thousands) | Three months ended April 30, 2022 (in thousands) | | :------------------------------------- | :------------------------------ | :------------------------------ | :-------------------------------- | :-------------------------------- | | Net sales | $1,308,756 | $1,029,156 | $687,841 | $538,813 | | Operating income | 286,524 | 221,599 | 157,090 | 122,777 | | Interest expense | (17,441) | (1,775) | (11,373) | (979) | | Income before income taxes | 270,065 | 220,364 | 146,060 | 122,112 | | Income tax expense | 52,000 | 33,000 | 31,000 | 29,000 | | Net income attributable to HEICO | $198,147 | $171,931 | $105,120 | $85,010 | | Diluted EPS | $1.43 | $1.25 | $.76 | $.62 | - Net sales **increased by** **27.2%** for the six months ended April 30, 2023, and by **27.7%** for the three months ended April 30, 2023, compared to the prior year periods[10](index=10&type=chunk) - Net income attributable to HEICO **increased by** **15.2%** for the six months and **23.7%** for the three months ended April 30, 2023, year-over-year[10](index=10&type=chunk) - Interest expense **significantly increased** for both periods, rising from **$1.8 million** to **$17.4 million** for the six-month period and from **$1.0 million** to **$11.4 million** for the three-month period, **primarily due to higher interest rates**[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section details the company's comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | Three months ended April 30, 2023 (in thousands) | Three months ended April 30, 2022 (in thousands) | | :------------------------------------------ | :------------------------------ | :------------------------------ | :-------------------------------- | :-------------------------------- | | Net income from consolidated operations | $218,065 | $187,364 | $115,060 | $93,112 | | Total other comprehensive income (loss) | 30,407 | (22,995) | 2,007 | (14,255) | | Comprehensive income attributable to HEICO | $227,020 | $149,929 | $106,852 | $71,418 | - Comprehensive income attributable to HEICO **increased significantly by** **51.4%** for the six months and **49.6%** for the three months ended April 30, 2023, **primarily due to positive foreign currency translation adjustments** compared to losses in the prior year[13](index=13&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section tracks changes in the company's shareholders' equity over time, reflecting contributions, distributions, and earnings Changes in HEICO Shareholders' Equity (in thousands) | Item | Balances as of Oct 31, 2022 (in thousands) | Six Months Ended Apr 30, 2023 Changes (in thousands) | Balances as of Apr 30, 2023 (in thousands) | | :------------------------------------------ | :-------------------------- | :------------------------------------ | :-------------------------- | | Redeemable Noncontrolling Interests | $327,601 | $18,232 | $345,833 | | Common Stock | $545 | $2 | $547 | | Class A Common Stock | $821 | $2 | $823 | | Capital in Excess of Par Value | $397,337 | $1,654 | $398,991 | | Accumulated Other Comprehensive Loss | ($46,499) | $28,873 | ($17,626) | | Retained Earnings | $2,253,932 | $181,223 | $2,435,155 | | Total HEICO Shareholders' Equity | $2,606,136 | $211,754 | $2,817,890 | - Total HEICO shareholders' equity **increased by** **$211.8 million** from October 31, 2022, to April 30, 2023, **primarily driven by comprehensive income and share-based compensation**, partially offset by cash dividends[15](index=15&type=chunk)[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | | :------------------------------------------ | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $154,436 | $174,753 | | Net cash used in investing activities | (559,790) | (143,955) | | Net cash provided by (used in) financing activities | 388,765 | (18,105) | | Effect of exchange rate changes on cash | 4,246 | (3,673) | | Net (decrease) increase in cash and cash equivalents | (12,343) | 9,020 | | Cash and cash equivalents at end of period | $127,161 | $117,318 | - Net cash provided by operating activities **decreased by** **$20.3 million (11.6%)** year-over-year, **primarily due to increased working capital needs**, particularly in inventories[17](index=17&type=chunk)[127](index=127&type=chunk) - Net cash used in investing activities **significantly increased to** **$559.8 million** from **$144.0 million**, **mainly driven by higher acquisition spending** (**$524.2 million** in 2023 vs **$105.5 million** in 2022)[17](index=17&type=chunk)[129](index=129&type=chunk) - Net cash provided by financing activities **dramatically shifted from** a net use of **$18.1 million** in 2022 to a net provision of **$388.8 million** in 2023, **largely due to increased borrowings on the revolving credit facility**[17](index=17&type=chunk)[130](index=130&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes on accounting policies, acquisitions, and other financial information [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section describes key accounting principles, segment reporting, and recent accounting standard adoptions - The financial statements are prepared in conformity with GAAP for interim financial information and should be read with the annual Form 10-K[18](index=18&type=chunk) - HEICO operates in two segments: Flight Support Group (FSG) and Electronic Technologies Group (ETG)[19](index=19&type=chunk) - Operating results in fiscal 2023 continue to reflect lingering COVID-19 effects, including supply chain impacts, but show improved demand for commercial aerospace products and services[20](index=20&type=chunk) - The company adopted ASU 2021-08 in Q1 fiscal 2023, with **no material effect** on financial statements[22](index=22&type=chunk) [2. ACQUISITIONS](index=10&type=section&id=2.%20ACQUISITIONS) This section details recent business acquisitions, including financial terms, strategic rationale, and their impact on results - In March 2023, HEICO Electronic acquired an exclusive license and assets for the Aircraft Emergency Locator Transmitter (ELT) product line from Honeywell International, paid in cash from operating activities[23](index=23&type=chunk) - On January 5, 2023, HEICO Electronic acquired **93.69%** of Exxelia International SAS for **$515.8 million** cash (net **$501.6 million**), expanding its Hi-Rel electronic components for aerospace and defense, and gaining geographic diversity in Europe. The acquisition was financed by the revolving credit facility[24](index=24&type=chunk)[25](index=25&type=chunk) Exxelia Acquisition Allocation (in thousands) | Assets acquired: | (in thousands) | | :--------------------------------- | :------- | | Goodwill | $332,033 | | Customer relationships | 64,935 | | Intellectual property | 44,044 | | Trade name | 21,703 | | Inventories | 55,922 | | Property, plant and equipment | 42,165 | | Accounts receivable | 41,113 | | Other assets | 11,254 | | Total assets acquired, excluding cash | 613,169 | | Liabilities assumed: | (in thousands) | | Deferred income taxes | 31,975 | | Accounts payable | 22,369 | | Accrued expenses | 18,383 | | Other liabilities | 24,231 | | Total liabilities assumed | 96,958 | | Noncontrolling interests | 14,660 | | Net assets acquired, excluding cash | $501,551 | - Exxelia contributed approximately **$69.6 million** to consolidated net sales for the six months ended April 30, 2023, and **$54.6 million** for the three months ended April 30, 2023[29](index=29&type=chunk) [3. SELECTED FINANCIAL STATEMENT INFORMATION](index=13&type=section&id=3.%20SELECTED%20FINANCIAL%20STATEMENT%20INFORMATION) This section provides additional details on specific financial statement line items such as accounts receivable, inventories, and R&D expenses Accounts Receivable (in thousands) | Metric | April 30, 2023 (in thousands) | October 31, 2022 (in thousands) | | :--------------- | :------------- | :--------------- | | Accounts receivable, net | $361,057 | $294,848 | Inventories (in thousands) | Metric | April 30, 2023 (in thousands) | October 31, 2022 (in thousands) | | :--------------- | :------------- | :--------------- | | Inventories, net | $721,569 | $582,471 | Research and Development Expenses (in thousands) | R&D expenses | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | Three months ended April 30, 2023 (in thousands) | Three months ended April 30, 2022 (in thousands) | | :------------- | :------------------------------ | :------------------------------ | :-------------------------------- | :-------------------------------- | | | $43,134 | $37,147 | $22,896 | $18,751 | - Redeemable noncontrolling interests **increased to** **$345.8 million** as of April 30, 2023, from **$327.6 million** as of October 31, 2022, reflecting new acquisitions and adjustments[38](index=38&type=chunk) [4. GOODWILL AND OTHER INTANGIBLE ASSETS](index=15&type=section&id=4.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) This section outlines the composition and changes in goodwill and other intangible assets, including acquisition-related increases and amortization Goodwill by Operating Segment (in thousands) | Segment | FSG (in thousands) | ETG (in thousands) | Consolidated Totals (in thousands) | | :-------------------------- | :-------- | :---------- | :------------------ | | Balances as of Oct 31, 2022 | $561,961 | $1,110,464 | $1,672,425 | | Goodwill acquired | — | 340,173 | 340,173 | | Foreign currency adjustments| 4,242 | 12,559 | 16,801 | | Adjustments to goodwill | (955) | 2,791 | 1,836 | | Balances as of Apr 30, 2023 | $565,248 | $1,465,987 | $2,031,235 | - Goodwill **increased by** **$358.8 million** to **$2.03 billion** as of April 30, 2023, **primarily due to the Exxelia acquisition** (**$340.2 million**)[43](index=43&type=chunk) Identifiable Intangible Assets (in thousands) | Asset Type | April 30, 2023 Net Carrying Amount (in thousands) | October 31, 2022 Net Carrying Amount (in thousands) | | :------------------- | :--------------------------------- | :----------------------------------- | | Amortizing Assets | $605,169 | $518,273 | | Non-Amortizing Assets| $239,150 | $215,054 | | Total Intangible Assets | $844,319 | $733,327 | - Amortization expense for intangible assets **increased to** **$36.9 million** for the six months ended April 30, 2023, from **$30.2 million** in the prior year, and is **estimated to be** **$37.5 million** for the remainder of fiscal 2023[47](index=47&type=chunk) [5. SHORT-TERM AND LONG-TERM DEBT](index=16&type=section&id=5.%20SHORT-TERM%20AND%20LONG-TERM%20DEBT) This section details the company's debt structure, including revolving credit facilities and other long-term obligations, and associated interest rates Long-term Debt (in thousands) | Debt Type | April 30, 2023 (in thousands) | October 31, 2022 (in thousands) | | :-------------------------------- | :------------- | :--------------- | | Borrowings under revolving credit facility | $723,000 | $275,000 | | Finance leases and note payable | 14,397 | 15,274 | | Less: Current maturities | (1,618) | (1,654) | | Total Long-term debt, net | $735,779 | $288,620 | - Long-term debt **significantly increased to** **$735.8 million** as of April 30, 2023, from **$288.6 million** as of October 31, 2022, **primarily due to increased borrowings** under the revolving credit facility to fund acquisitions[49](index=49&type=chunk)[130](index=130&type=chunk) - The weighted average interest rate on revolving credit facility borrowings **increased to** **6.1%** as of April 30, 2023, from **4.6%** as of October 31, 2022[50](index=50&type=chunk) [6. REVENUE](index=17&type=section&id=6.%20REVENUE) This section provides a breakdown of net sales by operating segment, product line, and industry, along with contract balances Contract Balances (in thousands) | Item | April 30, 2023 (in thousands) | October 31, 2022 (in thousands) | Change (in thousands) | | :---------------- | :------------- | :--------------- | :----- | | Contract assets | $103,448 | $93,978 | $9,470 | | Contract liabilities | 85,381 | 58,757 | 26,624 | | Net contract assets | $18,067 | $35,221 | ($17,154) | - Remaining performance obligations for contracts with duration greater than one year **totaled** **$606.7 million** as of April 30, 2023, with **$217.4 million expected to be recognized in the remainder of fiscal 2023 and $389.3 million thereafter (more than half in fiscal 2024)**[54](index=54&type=chunk)[55](index=55&type=chunk) Net Sales by Operating Segment and Product Line (in thousands) | Product Line | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | Three months ended April 30, 2023 (in thousands) | Three months ended April 30, 2022 (in thousands) | | :-------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | :-------------------------------- | :-------------------------------- | | **Flight Support Group:** | | | | | | Aftermarket replacement parts | $426,986 | $324,882 | $218,343 | $173,981 | | Specialty products | 187,493 | 126,579 | 96,008 | 67,286 | | Repair and overhaul parts and services | 149,001 | 127,533 | 77,851 | 65,046 | | **Total FSG net sales** | **763,480** | **578,994** | **392,202** | **306,313** | | **Electronic Technologies Group:** | | | | | | Electronic component parts (defense, space, aerospace) | 395,320 | 319,909 | 220,742 | 162,441 | | Electronic component parts (other industries) | 161,498 | 139,820 | 81,017 | 74,952 | | **Total ETG net sales** | **556,818** | **459,729** | **301,759** | **237,393** | | Intersegment sales | (11,542) | (9,567) | (6,120) | (4,893) | | **Total consolidated net sales** | **$1,308,756** | **$1,029,156** | **$687,841** | **$538,813** | Net Sales by Industry for Operating Segments (in thousands) | Industry | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | Three months ended April 30, 2023 (in thousands) | Three months ended April 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | :-------------------------------- | :-------------------------------- | | **Flight Support Group:** | | | | | | Aerospace | $523,893 | $417,724 | $269,353 | $215,319 | | Defense and Space | 196,909 | 136,258 | 101,267 | 77,603 | | Other | 42,678 | 25,012 | 21,582 | 13,391 | | **Electronic Technologies Group:**| | | | | | Defense and Space | 260,571 | 265,861 | 138,609 | 134,414 | | Other | 215,794 | 156,135 | 118,024 | 82,772 | | Aerospace | 80,453 | 37,733 | 45,126 | 20,207 | [7. INCOME TAXES](index=19&type=section&id=7.%20INCOME%20TAXES) This section explains the company's income tax expense and effective tax rates, highlighting factors influencing tax variations Effective Tax Rate | Period | Effective Tax Rate | | :-------------------------------- | :----------------- | | Six months ended April 30, 2023 | 19.3% | | Six months ended April 30, 2022 | 15.0% | | Three months ended April 30, 2023 | 21.2% | | Three months ended April 30, 2022 | 23.7% | - The effective tax rate for the six months ended April 30, 2023, **increased to** **19.3%** from **15.0%** in the prior year, **mainly due to** a **smaller tax benefit** (**$6.2 million** in 2023 vs **$17.8 million** in 2022) from stock option exercises[58](index=58&type=chunk) - The effective tax rate for the three months ended April 30, 2023, **decreased to** **21.2%** from **23.7%** in the prior year, **reflecting a favorable impact** from tax-exempt unrealized gains in life insurance policies related to the HEICO Leadership Compensation Plan[60](index=60&type=chunk) [8. FAIR VALUE MEASUREMENTS](index=20&type=section&id=8.%20FAIR%20VALUE%20MEASUREMENTS) This section describes assets and liabilities measured at fair value, including contingent consideration and deferred compensation plans, and their valuation inputs Fair Value Measurements (in thousands) | Item | As of April 30, 2023 Total (in thousands) | As of October 31, 2022 Total (in thousands) | | :-------------------------------- | :------------------------- | :--------------------------- | | Assets: Deferred compensation plan | $236,918 | $204,716 | | Liabilities: Contingent consideration | $56,831 | $82,803 | - Contingent consideration liabilities **decreased to** **$56.8 million** as of April 30, 2023, from **$82.8 million** as of October 31, 2022, **due to payments and the amendment/termination** of an agreement related to a fiscal 2021 acquisition[61](index=61&type=chunk)[66](index=66&type=chunk)[71](index=71&type=chunk) Unobservable Inputs for Level 3 Contingent Consideration Liabilities (as of April 30, 2023) | Acquisition Date | Fair Value (in thousands) | Unobservable Input | Range | Weighted Average | | :--------------- | :----------------------- | :----------------- | :---------- | :--------------- | | 9-1-2022 | $6,296 | CAGR | 0% - 17% | 13% | | | | Discount rate | 7.6% - 7.6% | 7.6% | | 7-18-2022 | 16,068 | CAGR | 2% - 9% | 5% | | | | Discount rate | 7.6% - 7.6% | 7.6% | | 3-17-2022 | 6,513 | CAGR | (3%) - 5% | 0% | | | | Discount rate | 6.6% - 6.6% | 6.6% | | 8-18-2020 | 8,475 | CAGR | 15% - 24% | 22% | | | | Discount rate | 8.2% - 8.2% | 8.2% | | 9-15-2017 | 19,479 | CAGR | 4% - 5% | 5% | | | | Discount rate | 6.3% - 6.3% | 6.3% | [9. NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS](index=24&type=section&id=9.%20NET%20INCOME%20PER%20SHARE%20ATTRIBUTABLE%20TO%20HEICO%20SHAREHOLDERS) This section presents the calculation of basic and diluted net income per share attributable to HEICO shareholders Net Income Per Share Attributable to HEICO Shareholders | Metric | Six months ended April 30, 2023 (in thousands, except EPS) | Six months ended April 30, 2022 (in thousands, except EPS) | Three months ended April 30, 2023 (in thousands, except EPS) | Three months ended April 30, 2022 (in thousands, except EPS) | | :------------------------------------------ | :------------------------------ | :------------------------------ | :-------------------------------- | :-------------------------------- | | Net income attributable to HEICO (thousands)| $198,147 | $171,931 | $105,120 | $85,010 | | Diluted EPS | $1.43 | $1.25 | $.76 | $.62 | | Weighted average common shares outstanding - diluted (thousands) | 138,590 | 137,916 | 138,600 | 137,867 | - Diluted EPS **increased by** **14.4%** to **$1.43** for the six months and **22.6%** to **$0.76** for the three months ended April 30, 2023, compared to the prior year periods[74](index=74&type=chunk) [10. OPERATING SEGMENTS](index=25&type=section&id=10.%20OPERATING%20SEGMENTS) This section provides detailed financial performance and asset information for the Flight Support Group and Electronic Technologies Group segments Segment Performance (in thousands) | Metric | FSG (6M 2023, in thousands) | ETG (6M 2023, in thousands) | FSG (6M 2022, in thousands) | ETG (6M 2022, in thousands) | | :---------------- | :------------ | :------------ | :------------ | :------------ | | Net sales | $763,480 | $556,818 | $578,994 | $459,729 | | Operating income | $183,521 | $124,516 | $118,573 | $121,576 | | Capital expenditures | $10,643 | $11,058 | $8,113 | $7,995 | - FSG net sales **increased by** **31.9%** and operating income by **54.8%** for the six months ended April 30, 2023, **driven by strong commercial aerospace demand**[75](index=75&type=chunk) - ETG net sales **increased by** **21.1%** and operating income by **2.4%** for the six months ended April 30, 2023, with **consistent organic growth** from acquisitions and other electronics, **offset by decreased defense product demand**[75](index=75&type=chunk) Total Assets by Operating Segment (in thousands) | Segment | FSG (Apr 30, 2023, in thousands) | ETG (Apr 30, 2023, in thousands) | FSG (Oct 31, 2022, in thousands) | ETG (Oct 31, 2022, in thousands) | | :-------- | :----------------- | :----------------- | :----------------- | :----------------- | | Total assets | $1,685,580 | $2,914,082 | $1,635,229 | $2,230,744 | [11. COMMITMENTS AND CONTINGENCIES](index=26&type=section&id=11.%20COMMITMENTS%20AND%20CONTINGENCIES) This section discloses the company's various commitments, such as standby letters of credit, product warranty liabilities, and legal contingencies - The Company has **$22.5 million in standby letters of credit**, **primarily for** performance and payment guarantees[77](index=77&type=chunk) Product Warranty Liability (in thousands) | Item | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | | :-------------------- | :------------------------------ | :------------------------------ | | Balances at beginning of fiscal year | $3,296 | $3,379 | | Accruals for warranties | 1,222 | 622 | | Warranty claims settled | (1,074) | (1,012) | | Balances as of April 30 | $3,444 | $2,989 | - An indirect subsidiary of HFSC received a **grand jury subpoena related to employment and work on Navy vessels**, with the Company **cooperating but unable to predict the outcome or financial impact**[79](index=79&type=chunk) [12. SUBSEQUENT EVENT](index=27&type=section&id=12.%20SUBSEQUENT%20EVENT) This section reports significant events occurring after the balance sheet date, notably the agreement to acquire Wencor Group - On May 15, 2023, HEICO **agreed to acquire Wencor Group for $1.9 billion cash and 1,137,656 shares** of HEICO Class A Common Stock. Wencor is a commercial and military aircraft aftermarket company[81](index=81&type=chunk) - The Wencor acquisition is **subject to customary closing conditions**, including regulatory approvals, and is **expected to close by the end of calendar 2023**[82](index=82&type=chunk) - HEICO **secured financing commitments**, including **increasing its existing credit facility to $2.0 billion** and a **new $1.5 billion Bridge Facility**, **to fund the Wencor acquisition**[83](index=83&type=chunk)[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on HEICO's financial performance and condition for the six and three months ended April 30, 2023, highlighting record net sales and operating income, segment-specific drivers, and the impact of acquisitions and macroeconomic factors. It also discusses the company's outlook, liquidity, capital resources, and the significant Wencor acquisition [Overview](index=29&type=section&id=Overview) This section provides a high-level summary of HEICO's business segments, operational performance, and key drivers for the reporting period - HEICO's operations are divided into two segments: Flight Support Group (FSG) and Electronic Technologies Group (ETG)[88](index=88&type=chunk) - The company experienced continued improvement in operating results in the first six months and second quarter of fiscal 2023, **driven by improved demand** for commercial aerospace products and services, despite lingering COVID-19 supply chain effects[89](index=89&type=chunk) - FSG reported **eleven consecutive quarters of sequential growth** in net sales and operating income due to **commercial air travel recovery**[89](index=89&type=chunk) - ETG's results reflect **consistent organic growth** from **increased demand** for most product offerings and the impact of the January 2023 acquisition, partially offset by **decreased demand for defense products**[89](index=89&type=chunk) [Recent Developments](index=30&type=section&id=Recent%20Developments) This section highlights significant recent events impacting the company, including major acquisition announcements - On May 15, 2023, HEICO **agreed to acquire Wencor Group for $1.9 billion in cash and 1,137,656 shares** of HEICO Class A Common Stock, a **significant** commercial and military aircraft aftermarket company[92](index=92&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section presents a summary of the company's consolidated and segment-level financial performance metrics, including net sales and operating income Consolidated and Segment Financial Highlights (in thousands, except percentages) | Metric | Six months ended April 30, 2023 (in thousands) | Six months ended April 30, 2022 (in thousands) | Three months ended April 30, 2023 (in thousands) | Three months ended April 30, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------ | :-------------------------------- | :-------------------------------- | | Net sales | $1,308,756 | $1,029,156 | $687,841 | $538,813 | | Operating income | $286,524 | $221,599 | $157,090 | $122,777 | | FSG Net sales | $763,480 | $578,994 | $392,202 | $306,313 | | ETG Net sales | $556,818 | $459,729 | $301,759 | $237,393 | | FSG Operating income | $183,521 | $118,573 | $99,912 | $66,197 | | ETG Operating income | $124,516 | $121,576 | $67,979 | $65,988 | | Gross profit margin | 39.0% | 39.0% | 38.7% | 39.2% | | SG&A as % of net sales | 17.1% | 17.5% | 15.9% | 16.4% | | Operating income as % of net sales| 21.9% | 21.5% | 22.8% | 22.8% | [Comparison of First Six Months of Fiscal 2023 to First Six Months of Fiscal 2022](index=32&type=section&id=Comparison%20of%20First%20Six%20Months%20of%20Fiscal%202023%20to%20First%20Six%20Months%20of%20Fiscal%202022) This section analyzes the financial performance of the company for the first six months of fiscal 2023 compared to the prior year, detailing revenue and income changes - Consolidated net sales **increased by** **27%** to a **record** **$1,308.8 million**, with FSG sales up **32%** (**$184.5 million**) and ETG sales up **21%** (**$97.1 million**)[95](index=95&type=chunk) - FSG's organic growth was **22%**, **driven by increased demand** for commercial aerospace products and services, while ETG's organic net sales **declined by** **2%** **due to decreased demand for defense products**, partially offset by other electronics and aerospace[95](index=95&type=chunk) - Consolidated gross profit margin remained flat at **39.0%**, with FSG's margin **increasing by** **2.4%** and ETG's **decreasing by** **2.6%**[96](index=96&type=chunk) - Consolidated operating income **increased by** **29%** to a **record** **$286.5 million**, with FSG operating income up **55%** (**$64.9 million**) and ETG operating income up **2%** (**$2.9 million**)[100](index=100&type=chunk) - Interest expense **surged to** **$17.4 million** from **$1.8 million**, **primarily due to higher interest rates**[102](index=102&type=chunk) - Net income attributable to HEICO **increased by** **15%** to **$198.1 million**, or **$1.43** per diluted share[107](index=107&type=chunk) [Comparison of Second Quarter of Fiscal 2023 to Second Quarter of Fiscal 2022](index=35&type=section&id=Comparison%20of%20Second%20Quarter%20of%20Fiscal%202023%20to%20Second%20Quarter%20of%20Fiscal%202022) This section analyzes the financial performance of the company for the second quarter of fiscal 2023 compared to the prior year, detailing revenue and income changes - Consolidated net sales **increased by** **28%** to a **record** **$687.8 million**, with FSG sales up **28%** (**$85.9 million**) and ETG sales up **27%** (**$64.4 million**)[109](index=109&type=chunk) - FSG's organic growth was **20%**, **driven by commercial aerospace recovery**, while ETG's organic net sales **declined by** **3%** **due to decreased defense product demand**[109](index=109&type=chunk) - Consolidated gross profit margin **decreased to** **38.7%** from **39.2%**, reflecting a **2.0%** improvement in FSG's margin offset by a **3.5%** decrease in ETG's margin[110](index=110&type=chunk) - Consolidated operating income **increased by** **28%** to a **record** **$157.1 million**, with FSG operating income up **51%** (**$33.7 million**) and ETG operating income up **3%** (**$2.0 million**)[114](index=114&type=chunk) - Interest expense **increased to** **$11.4 million** from **$1.0 million** **due to higher interest rates**[117](index=117&type=chunk) - Net income attributable to HEICO **increased by** **24%** to **$105.1 million**, or **$0.76** per diluted share[121](index=121&type=chunk) [Outlook](index=37&type=section&id=Outlook) This section provides management's expectations for future financial performance, strategic priorities, and anticipated challenges - HEICO anticipates **continued net sales growth** in both FSG and ETG for the remainder of fiscal 2023, **driven by product demand**[122](index=122&type=chunk) - The company expects ongoing inflationary pressures and supply chain disruptions to **lead to higher material and labor costs**[122](index=122&type=chunk) - **Strategic priorities** include new product development, market penetration, and an **aggressive acquisition strategy** while **maintaining financial strength**[123](index=123&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flow, funding sources, capital expenditures, and ability to meet its financial obligations - Principal uses of cash include acquisitions, capital expenditures, dividends, distributions to noncontrolling interests, and working capital[124](index=124&type=chunk) - Fiscal 2023 capital expenditures are **anticipated to be** **$45 to $50 million**[124](index=124&type=chunk) - Net cash provided by operating activities was **$154.4 million** for the first six months of fiscal 2023, a **decrease of $20.3 million (11.6%)** from the prior year, **mainly due to increased working capital** (inventories)[126](index=126&type=chunk)[127](index=127&type=chunk) - Net cash used in investing activities **totaled** **$559.8 million**, **primarily for acquisitions** (**$524.2 million**)[129](index=129&type=chunk) - Net cash provided by financing activities was **$388.8 million**, **driven by $556.0 million in revolving credit facility borrowings**, partially offset by payments and distributions[130](index=130&type=chunk) - Committed credit facilities and cash on hand are **sufficient to fund the Wencor Acquisition and other cash requirements for at least the next twelve months**[125](index=125&type=chunk)[132](index=132&type=chunk) [Forward-Looking Statements](index=40&type=section&id=Forward-Looking%20Statements) This section cautions readers about inherent risks and uncertainties associated with forward-looking statements, including those related to acquisitions and market conditions - The report contains forward-looking statements **subject to risks and uncertainties**, including public health threats, supply chain issues, demand fluctuations, regulatory demands, acquisition integration, and economic conditions[135](index=135&type=chunk) - Specific risks related to the Wencor acquisition include **financing challenges**, **regulatory approval delays**, and the potential for the business **not to perform as expected**[135](index=135&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section updates the company's market risk disclosures, specifically noting a new foreign currency exposure related to a Euro-denominated note issued as part of the Exxelia acquisition - A **new market risk** relates to a **ten-year, €150 million note** issued for the Exxelia acquisition, **accruing interest at 4.7% per annum**[137](index=137&type=chunk) - A **hypothetical 10% strengthening of the U.S. dollar against the Euro would decrease the U.S. dollar equivalent of the Euro note receivable by approximately $16.8 million and decrease operating income by the same amount**[137](index=137&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that HEICO's disclosure controls and procedures were effective as of April 30, 2023, and reported no material changes in internal control over financial reporting during the second quarter - Disclosure controls and procedures were evaluated and **deemed effective** as of April 30, 2023[138](index=138&type=chunk) - **No material changes** in internal control over financial reporting occurred during the second quarter ended April 30, 2023[139](index=139&type=chunk) PART II. OTHER INFORMATION [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) This section outlines updated risk factors, primarily focusing on those related to the pending Wencor Acquisition, including conditions for completion, potential negative impacts if the acquisition fails, substantial associated costs, and increased indebtedness - **Completion of the Wencor Acquisition is subject to various conditions**, including **regulatory approvals (Hart-Scott-Rodino Antitrust Improvements Act)**, and the absence of certain legal impediments or material adverse changes[143](index=143&type=chunk) - **Failure to complete the Wencor Acquisition could negatively impact stock price**, **incur significant transaction costs (including a $143.5 million termination fee under specified circumstances)**, and divert management resources[145](index=145&type=chunk)[146](index=146&type=chunk) - The Wencor Acquisition will involve **substantial transaction and regulatory costs**, and the company will **incur additional indebtedness**, **increasing interest expense and potentially reducing financial flexibility**[147](index=147&type=chunk)[148](index=148&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Merger Agreement for the Wencor acquisition, financing commitment letters, and certifications from the Chief Executive Officer and Chief Financial Officer - **Exhibit 2.1 is the Agreement and Plan of Merger for the Wencor acquisition**[149](index=149&type=chunk) - **Exhibit 10.1 is the Commitment letter for financing related to the Wencor acquisition**[149](index=149&type=chunk) - **Certifications from the CEO and CFO (Rule 13a-14(a)/15d-14(a) and Section 1350) are included as Exhibits 31.1, 31.2, 32.1, and 32.2**[149](index=149&type=chunk) SIGNATURES - The report was **signed on May 24, 2023, by Carlos L. Macau, Jr., Executive Vice President - Chief Financial Officer and Treasurer, and Steven M. Walker, Chief Accounting Officer and Assistant Treasurer**[154](index=154&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File Number: 001-04604 HEICO CORPORATION (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 ...

Financial Data and Key Metrics - Consolidated net sales increased 20% YoY to $614.5 million in Q4 FY22, driven by strong demand in the Flight Support Group (FSG) [10][11] - Consolidated operating income rose 27% YoY to $147.4 million, with operating margin improving to 24% from 22.6% in Q4 FY21 [11][12] - Net income increased 13% YoY to $97.2 million, or $0.70 per diluted share, compared to $86.1 million, or $0.62 per diluted share, in Q4 FY21 [12] - The effective tax rate increased to 23% in Q4 FY22, up from 18.3% in Q4 FY21, primarily due to unrealized losses in life insurance policies [13] Business Segment Performance Flight Support Group (FSG) - FSG net sales increased 33% YoY to a record $346 million, driven by 22% organic growth and contributions from acquisitions [17] - Operating income for FSG surged 60% YoY to $77.8 million, with operating margin improving to 22.5% from 18.7% in Q4 FY21 [18][19] - The growth was fueled by increased demand for commercial aerospace products and services, as well as higher sales of specialty products and aftermarket replacement parts [17][18] Electronic Technologies Group (ETG) - ETG net sales increased 6% YoY to $268.5 million, primarily due to acquisitions, partially offset by a slight decline in organic sales [22] - Operating income for ETG rose 4% YoY to $79.9 million, with operating margin slightly declining to 29.7% from 30.4% in Q4 FY21 [24][25] - The backlog remained elevated due to strong orders and supply chain delays, which are expected to benefit FY23 as shipments resume [23] Market and Strategic Outlook - The commercial aerospace market, HEICO's largest end market, continued to grow in FY22, with strong growth trends expected to continue into FY23 [28] - The defense market was flat in FY22, but global unrest and increased defense spending are expected to create a favorable environment for defense suppliers in FY23 [29] - Supply chain issues, particularly for electronic components, delayed certain deliveries in FY22, but these challenges are expected to mitigate in FY23 [29] - HEICO anticipates net sales growth in both FSG and ETG in FY23, driven by demand for the majority of its products [28] Management Commentary on Operating Environment and Future Prospects - Management expressed optimism about FY23, citing steady improvement in businesses during FY22 and a strong culture of ownership and entrepreneurial excellence [9][31] - The company remains committed to its conservative policies, strong balance sheet, and liquidity, which enable continuous investment in R&D and acquisitions [30] - HEICO's decentralized organizational structure and focus on long-term growth have been key drivers of its consistent outperformance [38][43] Acquisitions and Strategic Developments - In September 2022, ETG completed the acquisition of Trad Test and Radiation and Ironwood Electronics, both expected to be accretive to earnings within a year [14] - ETG also entered into an agreement to acquire approximately 95% of Exxelia International, which is expected to close in Q1 FY23 and will be HEICO's largest acquisition to date [15] - All acquisitions are expected to contribute to HEICO's earnings per share within a year of closing [15] Other Important Information - HEICO's 401-K plan, which matches employee contributions with HEICO stock, has resulted in many employees becoming millionaires, aligning their interests with shareholders [41] - The company's decentralized culture and focus on operational excellence have been key factors in maintaining its strong performance despite numerous acquisitions [38][42] Q&A Session Summary Question: How has HEICO maintained its culture and operational excellence despite numerous acquisitions? - HEICO's decentralized structure and focus on long-term growth have been key to maintaining its culture and operational excellence [38][43] - The company emphasizes strong relationships between management and employees, as well as a generous 401-K plan that aligns employee interests with shareholders [39][41] Question: What are the expectations for FSG margins in FY23? - FSG margins are expected to moderate in FY23 as the mix of products normalizes, particularly as the impact of COVID-19 diminishes [53] - The record 22.5% operating margin in Q4 FY22 was driven by strong growth in specialty products, which may not be sustained in FY23 [53] Question: How is HEICO positioned in the defense market? - HEICO expects to benefit from increased defense spending, particularly due to global unrest, but supply chain issues and procurement delays remain challenges [65] - The company's backlog in the defense market remains strong, supporting optimism for future growth [29][65] Question: What is the outlook for supply chain issues in ETG? - Supply chain issues, particularly for electronic components, reached record levels in Q4 FY22, but there are signs of improvement, with some "green shoots" emerging [65][95] - HEICO expects these issues to mitigate in FY23, but the timing remains uncertain [29][65] Question: How will Exxelia impact HEICO's margins? - Exxelia is expected to be dilutive to ETG margins in FY23, but the long-term opportunity is significant, as it aligns with HEICO's strategy of acquiring high-quality businesses [120][130] Question: What is HEICO's approach to M&A in the current market? - HEICO remains disciplined in its M&A approach, focusing on acquisitions that generate strong cash flow and align with its long-term growth strategy [157][159] - The company completed eight acquisitions in FY22 and continues to evaluate opportunities in both FSG and ETG [162] Question: How is HEICO managing wage and inflation pressures? - HEICO allows its subsidiaries to manage local wage and material cost pressures, while working with customers to protect margins through pricing adjustments [173] - The company's decentralized structure enables it to respond effectively to regional economic conditions [173] Question: What is HEICO's strategy in the PMA market? - HEICO continues to focus on expanding its PMA portfolio, with a record number of parts approved in FY22, driven by strong customer relationships and a diversified product offering [136][137] - The company is cautious about entering high-risk markets, such as the hot section of jet engines, and prefers to maintain its focus on lower-risk, high-reward opportunities [197][201]

Financial Data and Key Metrics Changes - Consolidated net sales increased by 21% to a record level in Q3 fiscal '22 compared to Q3 fiscal '21, while operating income improved by 28% [9][13] - Consolidated operating margin rose to 22.6% in Q3 fiscal '22 from 21.4% in Q3 fiscal '21 [9] - Net income attributable to non-controlling interest increased to $10.5 million in Q3 fiscal '22 from $6.8 million in Q3 fiscal '21 [10] - Effective tax rate increased to 27% in Q3 fiscal '22 from 15.7% in Q3 fiscal '21, with management estimating a more realistic operational tax rate of 21% [11][12] Business Line Data and Key Metrics Changes - Flight Support Group's net sales surged by 39% to $330.3 million in Q3 fiscal '22, driven by a 25% organic growth and contributions from acquisitions [21] - Operating income for the Flight Support Group increased by 68% to $70.8 million, with operating margin improving to 21.4% from 17.7% [22] - Electronic Technologies Group's net sales rose by 2% to $244.2 million, with a slight operating income decrease to $68 million due to lower defense product sales [25][27] Market Data and Key Metrics Changes - The backlog for the Electronic Technologies Group increased by approximately 16% since October 31, '21, indicating strong orders despite supply chain delays [25] - The company experienced around $25 million in revenue delays primarily due to supplier issues, with expectations for recovery in future periods [26] Company Strategy and Development Direction - The company plans to utilize its financial strength to pursue high-quality acquisitions to accelerate growth and maximize shareholder returns [16] - Recent acquisitions include Accurate Metal Machining and Exxelia International, with Exxelia expected to generate approximately EUR 190 million in revenue during calendar year '22 [17][18] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the recovery of global commercial air travel, although caution is advised due to potential pandemic variants and supply chain disruptions [29] - The company refrained from providing specific fiscal '22 net sales and earnings guidance due to uncertainties in the operating environment [29] Other Important Information - The company paid a regular semiannual cash dividend of $0.09 per share, marking its 88th consecutive semiannual cash dividend [17] - The total debt to shareholders' equity ratio improved to 9.9% as of July 31, '22, down from 10.3% as of October 31, '21 [15] Q&A Session All Questions and Answers Question: Can you provide more details on the Exxelia acquisition? - Management expressed excitement about the Exxelia acquisition, highlighting its complementary markets and the potential for expansion [33][34] Question: What is driving growth in the defense segment? - Management noted strong growth in non-defense markets such as space and medical, while defense product sales have lagged due to U.S. government outlays [36][37] Question: What are the expectations for airline inventory levels? - Management indicated that airlines are not significantly stocking inventory but are purchasing parts directly for aircraft maintenance [39][42] Question: Can you provide visibility on the delayed revenue recovery? - Management expects the bulk of the delayed revenue to be recovered in the fourth quarter, with some extending into the first quarter of the following fiscal year [52] Question: How does the company view the competitive landscape in the PMA market? - Management remains confident in HEICO's unique processes and product credibility, viewing new entrants as less of a threat [82]

HEICO Corporation (NYSE:HEI) Q2 2022 Earnings Conference Call May 24, 2022 9:00 AM ET Company Participants Laurans Mendelson – Chairman and Chief Executive Officer Eric Mendelson – Co-President and President of HEICO's Flight Support Group Victor Mendelson – Co-President and President of HEICO's Electronic Technologies Group Carlos Macau – Executive Vice President and Chief Financial Officer Conference Call Participants Gautam Khanna – Cowen Larry Solow – CJS Securities Peter Arment – Baird Jason Holcomb – ...

Financial Data and Key Metrics Changes - Consolidated operating income and net sales improved by 23% and 17% respectively in Q1 FY22 compared to Q1 FY21, driven by 13% organic net sales growth and contributions from fiscal '21 acquisitions [9][10] - Consolidated net income per diluted share increased by 24% to $0.63 in Q1 FY22 from $0.51 in Q1 FY21 [22] - Total debt to shareholders' equity improved to 10.1% as of January 31, 2022, down from 10.3% as of October 31, 2021 [10] Business Line Data and Key Metrics Changes - Flight Support Group's net sales increased by 37% to $272.7 million in Q1 FY22, with operating income rising by 103% to $52.4 million [17][18] - Electronic Technologies Group's net sales were $222.3 million in Q1 FY22, slightly down from $223.6 million in Q1 FY21, with operating income decreasing to $55.6 million from $60.1 million [20][21] Market Data and Key Metrics Changes - The Flight Support Group reported strong organic growth of 30%, reflecting increased demand for commercial aerospace products and services due to recovery in global air travel [17] - The Electronic Technologies Group experienced growth in medical and electronics products, but faced a decrease in defense and space product sales due to Omicron-related disruptions [20] Company Strategy and Development Direction - The company plans to utilize its financial strength to pursue high-quality acquisitions to accelerate growth and maximize shareholder returns [10] - Recent acquisition activity includes an agreement to acquire 74% of Pioneer Industries LLC, expected to be accretive to earnings within the first 12 months [14][15] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously optimistic about the recovery of global commercial air travel despite potential pandemic variants and supply chain disruptions [30] - The company does not provide specific fiscal '22 net sales and earnings guidance but emphasizes strong liquidity and investment in R&D [30] Other Important Information - Cash flow from operating activities was $78 million in Q1 FY22, down from $107.2 million in Q1 FY21, primarily due to increased working capital investment [11] - The company declared a semiannual cash dividend of $0.09 per share, marking the 87th consecutive dividend since 1979 [12] Q&A Session Summary Question: R&D spending and margin pressure - R&D spending is broad across product lines, with potential seasonality; margins may vary by quarter [34][35] Question: Supply chain concerns from airlines - The company is gaining market share due to competitors' supply issues and increased customer approval of parts [39][40] Question: Structural gains in margins post-pandemic - Margins have surprised positively, and there is potential for recovery to historical levels [52][54] Question: Impact of Omicron on orders - The quarter was consistent despite Omicron, with strong forecasts for future growth [55] Question: Inflation and pricing impact - The company is confident in maintaining margins despite inflation, passing costs to customers [59] Question: Near-term impact of geopolitical events - The decentralized nature of the business allows for quick adaptation to supply issues; titanium supply is manageable [62][63] Question: Acquisition pipeline and competition - The company has a full acquisition pipeline but faces competition from private equity; cultural fit is a priority [97][99]

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) HEICO Corporation's unaudited condensed consolidated financial statements for the three months ended January 31, 2022, include balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, with detailed accompanying notes [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) HEICO Corporation's unaudited condensed consolidated financial statements for the three months ended January 31, 2022, include balance sheets, statements of operations, and cash flows with accompanying notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of January 31, 2022, total assets increased slightly to **$3.51 billion** from **$3.50 billion**, while total liabilities decreased to **$913.6 million** from **$948.9 million**, leading to an increase in total shareholders' equity to **$2.34 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 31, 2022 | Oct 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$3,513,895** | **$3,498,407** | | Total Current Assets | $974,562 | $937,385 | | Goodwill | $1,446,250 | $1,450,395 | | **Total Liabilities** | **$913,550** | **$948,881** | | Total Current Liabilities | $273,880 | $294,880 | | Long-term debt, net | $235,650 | $234,983 | | **Total Shareholders' Equity** | **$2,342,056** | **$2,296,939** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended January 31, 2022, HEICO reported a **17.3%** increase in net sales to **$490.3 million** and a **23.1%** rise in operating income to **$98.8 million**, with net income attributable to HEICO increasing **23.1%** to **$86.9 million** and diluted EPS reaching **$0.63** Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $490,343 | $417,902 | 17.3% | | Operating Income | $98,822 | $80,285 | 23.1% | | Net Income Attributable to HEICO | $86,921 | $70,596 | 23.1% | | Diluted EPS | $0.63 | $0.51 | 23.5% | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased to **$78.0 million** in Q1 FY22 from **$107.2 million** in the prior year, primarily due to increased working capital, while investing activities used **$20.0 million** and financing activities used **$39.9 million** Cash Flow Summary (in thousands) | Activity | Three months ended Jan 31, 2022 | Three months ended Jan 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $77,980 | $107,199 | | Net cash used in investing activities | ($19,959) | ($25,271) | | Net cash used in financing activities | ($39,920) | ($91,407) | | **Net increase (decrease) in cash** | **$16,520** | **($7,449)** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail HEICO's accounting policies and financial statement components, including COVID-19 impacts, revenue recognition, segment reporting for its Flight Support Group and Electronic Technologies Group, and asset details - The company's results continue to be adversely impacted by the COVID-19 pandemic, although Q1 FY2022 showed significant improvement in demand for commercial aerospace products compared to Q1 FY2021[20](index=20&type=chunk) - The company operates through two segments: the Flight Support Group (FSG) and the Electronic Technologies Group (ETG)[19](index=19&type=chunk) Revenue by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Flight Support Group | $272,681 | $199,334 | | Electronic Technologies Group | $222,336 | $223,550 | | Intersegment sales | ($4,674) | ($4,982) | | **Total consolidated net sales** | **$490,343** | **$417,902** | - As of January 31, 2022, the company had **$474.4 million** of remaining performance obligations, with **$273.9 million** expected to be recognized as revenue during the remainder of fiscal 2022[38](index=38&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the first quarter fiscal 2022 financial results, highlighting a **17%** increase in consolidated net sales and **23%** rise in operating income, primarily driven by the Flight Support Group's recovery, while maintaining strong liquidity despite refraining from full-year guidance [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Consolidated net sales increased **17%** to **$490.3 million** in Q1 FY22, primarily from a **37%** sales increase in the Flight Support Group, leading to a **23%** rise in operating income to **$98.8 million** and an improved operating margin of **20.2%** - The FSG's net sales increased by **37%** (**$73.3 million**), reflecting strong organic growth of **30%** from the recovery in global commercial air travel[66](index=66&type=chunk) - The ETG's net sales decreased by **1%** (**$1.2 million**), mainly due to a **3%** decline in organic net sales from decreased demand for defense and space products[66](index=66&type=chunk) Operating Income by Segment (in thousands) | Segment | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Flight Support Group | $52,376 | $25,822 | 102.8% | | Electronic Technologies Group | $55,588 | $60,128 | -7.5% | | Other, primarily corporate | ($9,142) | ($5,665) | 61.4% | | **Total Operating Income** | **$98,822** | **$80,285** | **23.1%** | - The consolidated operating margin increased to **20.2%** in Q1 FY22 from **19.2%** in Q1 FY21, driven by the FSG's operating margin expansion to **19.2%** from **13.0%**[71](index=71&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary cash uses include acquisitions and capital expenditures, with net cash from operations at **$78.0 million** in Q1 FY22, and it maintains adequate liquidity for the next twelve months with a **10.1%** total debt to shareholders' equity ratio - Net cash provided by operating activities was **$78.0 million** in Q1 FY22, down from **$107.2 million** in Q1 FY21, mainly due to a **$57.9 million** increase in net working capital[79](index=79&type=chunk)[80](index=80&type=chunk) - The company anticipates fiscal 2022 capital expenditures to be approximately **$45 million**[77](index=77&type=chunk) - As of January 31, 2022, the company was in compliance with all debt covenants and had a total debt to shareholders' equity ratio of **10.1%**[77](index=77&type=chunk) [Outlook](index=29&type=section&id=Outlook) Management anticipates continued recovery in global commercial air travel for fiscal 2022 but refrains from providing specific guidance due to uncertainties from COVID-19 variants, supply chain disruptions, and inflation - The company is cautiously optimistic about the continued recovery of global commercial air travel but acknowledges risks from new COVID-19 variants, supply chain issues, and inflation[76](index=76&type=chunk) - Due to market uncertainties, the company has decided it would not be responsible to provide fiscal 2022 net sales and earnings guidance at this time[76](index=76&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that there have been no material changes in its assessment of market risk sensitivity from what was disclosed in its Annual Report on Form 10-K for the fiscal year ended October 31, 2021 - There have been no material changes in the company's assessment of its sensitivity to market risk since the last annual report[89](index=89&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that HEICO's disclosure controls and procedures were effective as of January 31, 2022, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that HEICO's disclosure controls and procedures were effective as of January 31, 2022[90](index=90&type=chunk) - No changes in internal control over financial reporting occurred during the first quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[91](index=91&type=chunk) [Part II. Other Information](index=34&type=section&id=Part%20II.%20Other%20Information) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which include certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and Interactive Data Files (Inline XBRL) - Exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and Section 1350, as well as Inline XBRL documents[94](index=94&type=chunk) [Signatures](index=35&type=section&id=Signatures) [Signatures](index=35&type=section&id=Signatures_child) The report is duly signed on February 25, 2022, by Carlos L. Macau, Jr., Executive Vice President - Chief Financial Officer, and Steven M. Walker, Chief Accounting Officer, on behalf of HEICO Corporation - The Form 10-Q was signed on February 25, 2022, by the company's Principal Financial Officer and Principal Accounting Officer[100](index=100&type=chunk)

HEICO Corporation (NYSE:HEI) Q4 2021 Results Conference Call December 16, 2021 9:00 AM ET Company Participants Laurans Mendelson - Chairman and CEO Eric Mendelson - Co-President and President of Flight Support Group Victor Mendelson - Co-President and President of Electronic Technologies Group Carlos Macau - Executive Vice President and CFO Conference Call Participants Pete Skibitski - Alembic Peter Arment - Baird Larry Solow - CJS Securities Kristine Liwag - Morgan Stanley Robert Stallard - Vertical Resear ...