HEICO (US:HEI)2022-08-30 18:23Financial 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]