Heico Q3 Earnings Call Highlights

Key Points

• HEICO posted record fiscal third-quarter results: Net income rose 33% to $235.4 million, operating income increased 34% to $355.2 million, and sales climbed 23% to $1.41 billion.
• Both operating groups delivered record sales and profits. Flight Support sales grew 18% with margins expanding to 25.9%, while Electronic Technologies sales rose 36% and operating margins increased to 26%.
• Management sees strong demand and expansion opportunities in defense, missiles, space, industrial technology and data centers, supported by a record backlog and acquisitions, though supply-chain constraints remain a challenge.

Heico NYSE: HEI reported record fiscal third-quarter results, with consolidated net income, operating income and sales rising sharply from a year earlier as demand remained strong across its aerospace, defense, electronics and industrial technology markets.

Net income for the quarter ended July 31 increased 33% to $235.4 million, or $1.67 per diluted share, from $177.3 million, or $1.26 per diluted share, in the prior-year period. Operating income rose 34% to $355.2 million, while net sales climbed 23% to a record $1.41 billion.

“We are immensely proud of our third quarter results, which shows continued margin expansion, robust organic growth, and strong cash generation,” Co-Chairman and Co-Chief Executive Officer Eric Mendelson said on the company’s earnings call.

Both Operating Groups Set Sales and Profit Records

The Flight Support Group, which serves commercial aviation, defense and other markets, reported an 18% increase in net sales to a record $947.8 million. Organic sales growth was 12%, driven by increased demand across all product lines, according to Victor Mendelson, the company’s other Co-Chairman and Co-CEO.

Flight Support Group operating income rose 24% to $245.3 million. Its operating margin improved to 25.9% from 24.7% a year earlier, aided by a more favorable mix in specialty products and aftermarket replacement parts, as well as selling, general and administrative expense efficiencies tied to higher sales.

Eric Mendelson said Flight Support’s parts and distribution business posted 15% organic growth, while specialty products grew 14% and component repair increased 5%. He said component-repair revenue growth was affected both by supply-chain constraints and by the use of alternative parts and repairs that can reduce revenue while improving profitability for both customers and the company.

The Electronic Technologies Group posted a 36% sales increase to a record $483.5 million, including 18% organic growth. Operating income increased 55% to $125.6 million, while the group’s operating margin expanded to 26% from 22.8%.

Victor Mendelson attributed Electronic Technologies’ performance to higher demand for electronics, defense and aerospace products, contributions from acquisitions, improved gross margin from aerospace sales, and lower SG&A expenses as a percentage of sales.

Management said growth was broad-based. Victor Mendelson identified industrial technology as the fastest-growing market by percentage, while describing defense and commercial aerospace demand as “extremely strong.” He said the company had record backlog in Electronic Technologies, with customers requesting accelerated deliveries in industrial technology, defense and commercial aviation markets.

Defense, Space and Industrial Opportunities

Management said defense growth was particularly strong. Eric Mendelson said Flight Support Group defense revenue organic growth was in the upper 20% range, driven largely by specialty products. The company also cited opportunities in missile and missile-defense programs, drones, commercial and defense space, industrial gas turbines and data-center-related demand.

Victor Mendelson said some customers have asked the company to prepare for substantially higher production volumes on missile-related programs, with requests ranging from doubled output to as much as 10 times current production in some instances. He added that HEICO is seeing demand associated with artificial intelligence and data-center construction through products made by several subsidiaries.

The company also said it sees potential opportunity from proposed right-to-repair and build-to-print initiatives affecting defense procurement. Eric Mendelson said HEICO’s operating businesses are monitoring developments and could be positioned to help the government reduce costs, though he did not provide specific projections.

Management cautioned that supply-chain constraints continue to affect some operations. Eric Mendelson said component repair businesses can be delayed when a repair cannot be completed because a single required part is unavailable. While some earlier supply issues have improved, he said other shortages have emerged and the situation remains a “major headache” for the industry.

Cash Generation, Debt Refinancing and Acquisitions

Cash flow from operating activities increased 49% to $345.3 million during the quarter, equal to nearly 150% of net income, according to Eric Mendelson. Consolidated EBITDA increased 31% to $415.2 million, and net debt to EBITDA improved to 1.57 times as of July 31 from 1.6 times at the end of fiscal 2025.

During the quarter, HEICO issued $1.2 billion of senior unsecured notes and used the proceeds to repay borrowings under its revolving credit facility. The company also extended the revolver’s maturity by three years to June 2031 and increased committed capacity to $2.2 billion. The facility includes an accordion feature that could raise capacity to $3 billion through additional lender commitments.

In June, the company completed two acquisitions:

• Flight Support Group, through an 80%-owned subsidiary, acquired Cook Defence Systems Limited, William Cook Stanhope Limited and William Cook Intermodal Limited. Collectively known as Cook Defence, the businesses design and manufacture track systems, mobility solutions and armored steel components for military fighting vehicles.
• Electronic Technologies Group subsidiary Exxelia acquired a 90% interest in CalRamic Technologies LLC, a producer of high-voltage ceramic capacitors for high-reliability aerospace, defense and industrial applications.

Management said both acquisitions are expected to be accretive to earnings within one year of closing. Eric Mendelson said the company’s acquisition pipeline remains “incredibly full,” encompassing potential transactions of varying sizes. The company said it remains focused on disciplined deals that meet its strategic and financial criteria.

Outlook

For the remainder of fiscal 2026, HEICO expects net sales in both operating groups to continue benefiting from underlying product demand and recent acquisitions. Chief Financial Officer Carlos Macau said the company continues to expect segment GAAP operating margins of 22% to 24% for the full year, equivalent to roughly 26% to 28% on an EBITA basis, while noting that Electronic Technologies margins can be sensitive to quarterly sales mix.

Macau said working capital should continue to use some cash in the fourth quarter as the company builds inventory to support backlog and customer demand. He also noted that fourth-quarter operating cash flow is expected to include a $70 million to $75 million payment to the estate of HEICO’s former chairman and CEO.

Victor Mendelson said the company will continue prioritizing investments in organic growth and acquisitions while maintaining liquidity and financial flexibility.

About Heico (NYSE:HEI)

HEICO Corporation is an aerospace, defense and electronics company that designs, manufactures, and sells a range of products and provides repair and aftermarket services. Headquartered in Hollywood, Florida, HEICO supplies replacement components, repair services and engineered systems for commercial and business aviation, military and space markets as well as for selected industrial and medical customers. The company's offerings are focused on sustaining and improving the reliability and availability of complex equipment across its end markets.

HEICO operates through two principal business areas.

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