HEICO Corporation (NYSE: NYSE:HEI), a leading aerospace and electronics manufacturer, has announced record-breaking results for the second quarter of fiscal year 2024. The company's consolidated net income soared by 17% to $123.1 million, with operating income and net sales witnessing a significant increase of 33% and 39%, respectively, compared to the same period last year.
The Flight Support Group reached historic highs in quarterly net sales and operating income. The company's executives expressed confidence in future growth, driven by acquisitions, demand for products, and strategic initiatives.
Key Takeaways
- Record consolidated net income of $123.1 million, up 17% from the previous fiscal year.
- Consolidated operating income and net sales increased by 33% and 39%, respectively.
- Flight Support Group achieved record quarterly net sales and operating income.
- Electronic Technologies Group net sales grew by 6%.
- HEICO anticipates further growth across its groups, driven by acquisitions and product demand.
- Executives aim to maintain high operating margins, targeting a long-term margin around 22%.
- The partnership between Wencor and HEICO's specialty products group is expected to yield benefits in 2025.
- Supply chain issues are largely resolved, with some lingering delays.
- HEICO remains focused on R&D, with consistent investment planned.
- Optimism expressed for the international travel market and the aviation industry's long-term prospects.
Company Outlook
- Continued net sales growth expected in both Flight Support and Electronic Technologies Groups for the remainder of fiscal year 2024.
- Long-term confidence in the aviation industry, with strategic focus on financial strength and acquisitions.
- Decrease in interest expenses anticipated due to debt paydowns.
Bearish Highlights
- Potential slight decrease in operating margins as growth patterns stabilize.
- Weaker performance noted in non-aerospace and defense markets due to customer inventory channels.
Bullish Highlights
- Strong aftermarket parts business growth, with exceptional performance by Wencor.
- Positive impact from the conflict in Ukraine on sales and new product introductions.
- Strong international travel market across the Americas, Europe, Asia, the Middle East, and China.
Misses
- Limitations in the component repair business due to supply chain constraints.
- Weaker performance in the "other" segment, with no specific details provided.
Q&A Highlights
- The 24% target margin is aspirational, not expected as an average for the full year.
- Increased demand for data centers in the Connect Tech division.
- The success of the Wencor acquisition highlighted, with benefits from aftermarket sales cooperation.
- No plans to merge Wencor with HEICO's core PMA parts business, focusing instead on cooperation and efficiency.
- Executives discussed the importance of R&D and new product development, with significant contributions from Wencor.
- The acquisition of Exxelia positions HEICO to better serve European allies.
HEICO Corporation has delivered a robust performance in the second quarter of fiscal year 2024, setting new records and demonstrating resilience in its operations. The company's strategic focus on acquisitions, product development, and market expansion, coupled with a strong financial position and a successful M&A strategy, positions it well for continued growth in the dynamic aerospace and electronics sectors.
As HEICO moves forward, it remains committed to its decentralized model, fostering innovation and efficiency across its subsidiaries while navigating the complexities of the global market. Investors and stakeholders anticipate the company's continued success as it prepares to report third-quarter results in the near future.
InvestingPro Insights
HEICO Corporation's (NYSE: HEI) remarkable performance in the second quarter of fiscal year 2024 is further underscored by several key metrics and insights from InvestingPro. With a market capitalization of $29.72 billion, the company's valuation reflects its significant presence in the aerospace and electronics sectors.
InvestingPro Data indicates that HEICO is trading at a high earnings multiple, with a P/E Ratio of 53.78 and an adjusted P/E Ratio for the last twelve months as of Q2 2024 at 57.91. This suggests that investors have high expectations for the company's future earnings potential. Additionally, the company's revenue growth is impressive, with a 41.13% increase in the last twelve months as of Q2 2024, indicating strong sales performance.
Furthermore, HEICO's commitment to shareholder returns is evident in its dividend history. An InvestingPro Tip highlights that HEICO has raised its dividend for 6 consecutive years, showcasing a reliable commitment to returning value to shareholders. Moreover, the company has maintained dividend payments for 49 consecutive years, a testament to its financial stability and prudent management.
Investors looking for a deeper dive into HEICO's financial health and future prospects can find additional insights and metrics on InvestingPro. There are 15 more InvestingPro Tips available, offering a comprehensive analysis of HEICO's performance and potential. For those interested in accessing these valuable insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. This exclusive offer provides an opportunity to leverage InvestingPro's detailed analysis to inform investment decisions.
Full transcript - Heico Corp (HEI) Q2 2024:
Operator: Welcome to the HEICO Corporation Second Quarter 2024 Financial Results Call. My name is Samara, and I will be your operator for today's call. 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-19 pandemic. HEICO's liquidity and the amount and timing of cash duration, lower commercial air travel, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase to our cost to complete contracts, governmental and regulatory demands; export policies and restrictions; reductions in defense, space or homeland security spending by U.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-K, Form 10-Q and Form 8-K. 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 Laurans Mendelson, HEICO's Chairman and Chief Executive Officer.
Laurans Mendelson: Thank you very much, Samara, and good morning to everyone on the call. We thank you for joining us, and we welcome you to this HEICO second quarter fiscal '24 earnings announcement teleconference. I'm Larry Mendelson, Chairman and CEO of HEICO Corporation. And I'm joined here this morning by Eric Mendelson, HEICO's Co-President and the 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 excellent quarter. Your focus on customers and operational excellence has provided record quarterly results for our shareholders, and I remain extremely optimistic about HEICO's future. I also want to thank everyone on the call, the HEICO team members and our customers and vendors who themselves or family members have served this great country. Some of whom made the ultimate sacrifice for our freedom. I hope you had these patriots in your port on Memorial Day. HEICO is proud of the role we play in support of the armed forces of the United States and our allies. I will summarize the highlights of the second quarter fiscal '24 results. Consolidated operating income and net sales in the second quarter of fiscal '24 represent record results for HEICO an improved by 33% and 39%, respectively, as compared to the second quarter of fiscal '23. The results mainly reflect 21% organic net sales growth in the Flight Support aftermarket replacement parts and the impact from our profitable fiscal '23 and '24 acquisitions as well as improved results at ETG. Consolidated net income increased 17% to a record $123.1 million or $0.88 per diluted share in the second quarter of fiscal '24, and that was up from $105.1 million or $0.76 per diluted share in the second quarter of fiscal '23. Consolidated EBITDA increased 35% to $252.4 million in the second quarter of fiscal '24, and that was up from $187.2 million in the second quarter of fiscal '23. Our consolidated EBITDA margin was a very healthy 26.4% in the second quarter of fiscal '24. The Flight Support Group set all-time quarterly net sales and operating income records in the second quarter of fiscal '24, improving an enormous of 65% and 49%, respectively, over the second quarter of fiscal '23. The increase principally reflects the impact from our profitable fiscal '23 and '24 acquisitions and strong 12% organic growth mainly attributable to increased demand for Flight Support Group, aftermarket replacement parts and repair and overhaul parts services. Our net debt-to-EBITDA ratio was 2.45x as of April 30, '24 and that was down from 3.04x as of October 31, '23. We remain on track to lower our leverage to 2x within 12 to 18 months post the Wencor acquisition. Cash flow provided by operating activities increased 82% to $141.1 million in the second quarter of fiscal '24 and that was up from $77.8 million in the second quarter of fiscal '23. At this time, I would like to introduce Eric Mendelson, Co-President of HEICO and the President of HEICO's Flight Support Group, and he will discuss the second quarter results of the Flight Support Group.
Eric Mendelson: Thank you very much. The Flight Support Group's net sales increased 65% to a record $647.2 million in the second quarter of fiscal '24, up from $392.2 million in the second quarter of fiscal '23. The net sales increase reflects the impact from our fiscal '23 and '24 acquisitions and strong 12% organic growth. The organic net sales growth mainly reflects 21% organic growth within our aftermarket replacement parts product line. Both the legacy hikes in Wencor operations continue to exceed our expectations, and the results prove that Wencor was an excellent investment for HEICO. Both HEICO's and Wencor's entrepreneurial culture and a record of producing high-quality products continues to produce wins in the marketplace. Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs. Consistent with HEICO's time-tested and well-known operating philosophy, we continue to operate Wencor as a stand-alone business operation. However, we have made good progress working together and serving our customers. Some examples of how we are now working together include the utilization of all HEICO and Wencor PMAs and DERs at all repair stations, commercial and defense aftermarket sales cooperation where appropriate, Wencor e-commerce platform lists all HEICO noncompetitive PMAs. Wencor is utilizing HEICO's manufacturing base to quote new products, Engineering and regulatory cooperation that we expect to yield tremendous benefits for our company and sharing best-in-class vendors. The Flight Support Group's operating income increased 49% to a record $148.9 million in the second quarter of fiscal '24, up from $99.9 million in the second quarter of fiscal '23. The operating income increase principally reflects the previously mentioned net sales growth. Partially offset by higher as expected intangible asset amortization expense due to the Wencor acquisition. The prior year impact from the amendment and termination of a contingent consideration agreement and increased inventory obsolescence expense. The price of Work Group's operating margin was 23% in the second quarter of fiscal '24 as compared to 25.5% in the second quarter of fiscal '23. Given that acquisition-related intangibles amortization in the second quarter of 2024, consumed around 280 basis points of our operating margin. The FSG cash margin before that amortization, otherwise known as EBITDA, was around 25.8%, which is excellent in absolute terms, and we are extremely pleased with it. The decrease in operating income as a percentage of net sales principally reflects the prior year impact from the previously mentioned amendment and termination of a contingent consideration agreement and the previously mentioned higher intangible asset amortization expense, partially offset by lower performance-based compensation expense as a percentage of net sales. Now, I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the second quarter results of the Electronic Technologies Group.
Victor Mendelson: Thank you, Eric. The Electronic Technologies Group's net sales increased 6% to $319.3 million in the second quarter of fiscal '24, up from $301.8 million in the second quarter of fiscal '23. The net sales increase is attributable to 4% organic growth, mainly reflecting double-digit organic net sales growth of defense and aerospace products, partially offset by lower organic net sales of other electronic products. We were very pleased to see this core ETG end market gained traction in the past quarter even sooner than we had previously expected. As we previously thought it would more likely be an early third quarter event when we would see that turn up. While we continue to expect quarterly variation in lumpiness in our defense net sales, we believe the overall trend over the long term will remain positive. The Electronic Technologies Group's operating income was $75.3 million in the second quarter of fiscal '24, up from $68 million in the second quarter of fiscal '23. The operating income increase principally reflects an improved gross profit margin and the previously mentioned net sales growth. The improved gross profit margin principally reflects increased net sales of defense products partially offset by our expected decreased other electronics products net sales. The Electronic Technologies Group's operating margin improved to 23.6% in the second quarter of fiscal '24 up from 22.5% in the second quarter of fiscal '23. Given that acquisition-related intangibles amortization consumes around 400 basis points of our operating margin, the ETG cash margin before that amortization was around 27.5%, which is excellent in absolute terms, and we are very pleased with it. The operating margin increase principally reflects the previously mentioned gross profit margin and net sales growth, partially offset by lower SG&A efficiencies. Growth in net sales of defense and commercial aerospace product sales contributed to a favorable product mix during the second quarter, and we note that we finished the quarter with a record order backlog. I'll turn the call back over to Larry Mendelson.
Laurans Mendelson: Thank you, Victor. Now for the outlook. As we look ahead to the remainder of fiscal '24, we continue to anticipate net sales growth in both FSG and ETG, principally driven by contributions from our fiscal '23 and '24 acquisitions as well as demand for the majority of our products. Notably, we remain optimistic on the ETG's opportunity to expand and grow its net sales of defense-related products over the next six months of fiscal '24 and that is supported by a strong backlog. Additionally, we plan to continue our commitment to developing new products and services, and further market penetration while maintaining our financial strength and flexibility. In closing, I would like to thank our dedicated and loyal team members for their continued support and commitment to HEICO. Our dedication to customers, team members and the production of high-quality, highly engineered niche products continues to be a winning strategy in the marketplace. The end markets we serve remain very healthy, and I'm highly optimistic about HEICO'S future. Thanks for all you do to make HEICO a great company. And now, I would like to open the floor for questions.
Operator: [Operator Instructions] And we'll take our first question from Robert Spingarn with Melius Research. Please go ahead.
Robert Spingarn: Good morning, everybody. Congrats on another just excellent quarter. I wanted to dig into the businesses a little bit. So, Victor, I would start with you and then Eric, I have something for you as well. But Victor, in -- you just talked about your margins and the mix improvement, and it sounds like the second half should be better, especially based on your prior comments. I think, saying something like 24% for the full year. So that implies a step-up here in the second half. And is that a good number for next year? In other words, are we starting to move back toward the margins of a couple of years ago? Or does that depreciation keep us forgetting there?
Victor Mendelson: Rob, I'm going to dive in here because I've had a bunch of conversations with analysts about this topic, maybe a little confusion. The 24% that's been battered around that is what we aspire the segment's margin to elevate to. I don't know that we'll get there for the full year being an average of 24%. My comments last quarter were that -- yes, my comments last quarter that as the defense came back, that would be accretive to our margin, which we expected to come in the second half. And I thought sometime during this fiscal year, we posted a quarter at 24% plus, and that's kind of where we're at.
Robert Spingarn: Okay, thank you for clarifying that. Victor, I have a little bit more qualitative one then for you. And thinking about your data microwave division, you've got Connect Tech there, which is one of NVIDIA (NASDAQ:NVDA)'s largest global hardware partners and want to see if you're seeing an acceleration in orders or RFPs there and other businesses within ETG to support all of this demand for data centers?
Victor Mendelson: Yes. Rob, good question. Connect Tech definitely is seeing increased demand for data centers and on NVIDIA products. And I would expect that to continue. Now while Connect Tech is not a huge part of our company, it's important and it's a great business. In terms of the other companies, I don't think we're seeing a lot related to data centers. It's not a material part of our business in ETG.
Robert Spingarn: Okay. And then, Eric, just quickly, in your business, just outstanding organic aftermarket parts growth at 21%. And I asked you this question in the past, but is there any way to parse that in terms of -- for lack of a better expression, sort of same store parts growth, same customers, same parts versus pricing, versus market share gains? In other words, what's driving the 21%?
Eric Mendelson: Rob, this is Eric. So, as you know, we operate a very decentralized business. And in order to drive -- to capture those numbers from all of the business units, it would be very difficult that we don't capture that. So, I don't know the specific finite answer to that. But I can tell you that we've gotten a little bit of pricing. As I've mentioned on prior calls that our customers are very comfortable with our need to test on our increases in the cost to manufacture and our cost to do business. And so, in order to maintain our margins, our prices have to go up by at least that amount. So, they understand that, and we've been able to do that. So, there has been a certain amount in terms of price increase -- cost increases driving price increases. And then as far as the balance, I don't have the, as I said, the specific numbers in front of me, but my guess is that it's probably I don't know, half and half, half existing product increased penetration and half the sale of new products that hadn't been sold in the year ago period. That would be might get -- some of the businesses do capture this. So, I am able to see it for certain companies. And that's why I'm able to say what I just said but that's sort of my feeling on it. But we are not a price increase story. So, it's -- we're not driving these 21% return, a 21% increase is because we're raising price 21%. My guess is that price would be far less than 1/3, maybe even less than -- even less than 1/4 of that number. So, most of it would be volume increases.
Robert Spingarn: Okay. And then just as a final sort of follow-up to that. We know that turnaround times for LEAP and GTF engines are significantly longer than they are for the prior gen CFM56 and V2500 and part of this is the lack of approved DRs and PMAs for LEAP GTF. So, knowing that these programs are early in their life cycle, I wanted to see if you've started to work on those and what kind of ramp we might expect for HEICO's activity or FSG's activity on these two new engine types?
Eric Mendelson: So, Rob, that's a great question. And as you know, we're very sensitive about giving specific information due to competitive reasons, as you can imagine, on any particular platform. But I can tell you that we have our eyes on new platform opportunities. Yes, we're willing to develop some product based on speculation that we'll be able to sell it. But we really need to make sure that the customers will be there and commit to us. You pointed out in your question, the basis and the reason why we exist and why our customers want us to exist. And I agree with you. I think that if there were alternative sources of supply, the situation wouldn't be as dire as it is. But at the moment, I'm going to have to pass on really where we are at that point. But needless to say, we've got people focused on all parts of the market.
Operator: And we'll take our next question from Sheila Kahyaoglu with Jefferies. Please go ahead.
Sheila Kahyaoglu: Great quarter. Thank you so much. Eric, just on your prepared remarks, you made a few comments about Wencor and how you're working together and you're starting to see those results. I was wondering if you could quantify that in any way or how you're tracking that internally. Are you looking into a part sold into a certain customer and the increase as you combine the sales force? Maybe if you could elaborate there.
Eric Mendelson: Got it. So, the answer is we don't specifically capture what those numbers are. It's very hard to capture. And what we're just trying to do is get the businesses to do what's in their interest and to do what's in their customers' interest and the combined HEICO interest. So unfortunately, I don't have a number, but I can tell you that just breaking down, looking at the various areas, the use of the Wencor PMAs, Wencor and HEICO PMAs and DERs at the repair station is very significant. We always said that the product selections from both companies were was extremely complementary. There was not a lot of overlap. So, you can just imagine when overhauling an LRU by being able to purchase each other's PMAs, which, to a certain extent, was done pre-acquisition but by being able to use each other's DERs and being able to rationalize where we overhaul these products. We've got multiple repair stations that are obviously strong in certain areas and weaker in other areas, and they've been able to buy themselves and without me orchestrating this they've been able to share technology and figure out where it makes sense to swap product line, swap technologies. And as a result, it's really hard to measure this stuff. So, we really don't even try. As far as the aftermarket sales cooperation, I'd say that's been excellent in terms of opening doors for each other. We've had meetings with airlines who are so excited that we have the potential of putting all of these increased number of products together and really provide a very, very unique service. And I can tell you, the airline support has been extraordinary. We thought that it would be good but it is really off the charts outstanding. In terms of the defense aftermarket, we've already -- that there are all sorts of examples where in the international market, we were procuring parts from other sources. Now, we're buying the legacy HEICO companies are buying it from the Wencor companies and vice versa. So that's working extremely well. Having the -- we are able to see when we list the HEICO parts on the Wencor platform, we are able to see what that is, and that's been excellent and very good. In terms of manufacturing new products down the road, Wencor has a very aggressive new product development program and having all of the 10 HEICO manufacturing businesses open to manufacture products makes a lot of sense, and I think it's really going to benefit future of course, that hasn't benefited yet. It benefited the numbers. In terms of engineering and regulatory cooperation, that's substantial by pooling the talents of both businesses we're able to get a lot more done. And I can tell you in discussions also with the FAA, they're very excited about that as well. And then obviously, sharing best-in-class vendors. So, I'm sorry that I can't give you a specific number, but I think you see it in our organic growth and in our margin expansion, which is frankly beyond where I thought we would be. And I'm just so happy with the results that I'm letting them speak for themselves.
Sheila Kahyaoglu: No, I really appreciate that, Eric. And then maybe I wanted to ask another one on price. I know you said that top line contribution is about 1/3 or 1/4 of your growth. How do we think about that net price impact? And should we see that discount to the OEM narrow as it widened throughout the last four years? Do we see that narrow? And do, we see the Wencor coming through in all your efforts coming through with new product development and higher net price even as inflation comes down. Does that make sense?
Eric Mendelson: No, yes. I understand your question, and I can tell you that how the prices that we sell as a percentage of OEM, I would say, are unfortunately at an all-time low. So, the OEMs have raised prices faster than we have raised prices. We want to make sure that, as I said, we need to pass on -- nobody wants a price increase. And while it appears easy, I must say that I understand, I know what it feels to walk in our sales to choose trying to get these price increases because even though costs are going up, nobody wants to take a price increase, especially when you when you're delivering so much value. So, while we have been successful in recapturing our increased costs and plus a little bit in some cases, at the percentage of OEM at which we sell our parts is, as I said, at an all-time low. And we're in the market capture space, and we think that we can continue to drive exceptional value for our customers by maintaining this philosophy.
Operator: And we'll take our next question from Scott Deuschle with Deutsche Bank. Please go ahead.
Scott Deutsche: Carlos, can you give us an update on the operating margins you think FSG should be able to do this year? It looks like you're tracking a good bit higher than the 21% to 22% range you outlined previously?
Carlos Macau: The FSG is performing exceptionally well right now. And the caution I'll throw at you is, number one, obviously, we are a conservative bunch. And I'm not sure at this point once we get through this, what I'll call, exceptional growth period and the mix within the segment kind of flattens out or settles out. I'm still thinking that maybe it's towards the high end of '22 for sort of thinking out long term once we settle in. But I wouldn't -- I don't want to guide or get you guys thinking about us having 23-plus percent margins. Now, I don't see impediments in front of us to continue to have these strong margins, but I do think that as the footprint settles down, we'll just see a natural tendency to -- has the margin come down a little. And by the way, the reason for that is during the quarter, we had exceptional growth in our aftermarket parts business. Repair and overhaul were strong, not as strong as a parts business. And Specialty Products is a little flat on the commercial OEM product build side. So, I think as those segments, their growth patterns get back to normal, we might see a slight depression of that 23%, but not a ton. Does that answer your question, Sir?
Scott Deutsche: Yes, it does. I mean you did 22.5 -- 22.5% in the first half and typically your second half stronger. I'm just trying to figure out what drives it down second half for first half? It sounds like that's kind of what you're teeing out?
Carlos Macau: At some point, it's got me miss I'm not so sure that we are going to lose momentum in what I'll call exceptional growth this year. So, we probably will have margins that bounce around. But I can't predict the exceptionalism of our team members. I mean, the operations and the way they're running the business now to keep up with the demand that's out there to deal with this growth and employees and everything. They're just doing an exceptional job. So, I hope this margin would continue. I'm just cautioning you that my view is once the mix settles in, we're running 21 to 22, we're going to be very happy as a management team.
Eric Mendelson: And Scott, this is Eric. Scott, this is Eric. And I can tell you, this is a shout-out to our many team members who I think are on this call. But HEICO has got the biggest bunch of sandbaggers that you've ever -- that I've ever seen. And one, they're super talented. This is not meant to take away from their achievements because their achievements are nothing short of incredible and amazing. However, having said that, as Carlos said, they tend to be very conservative. We joke around internally. Carlos and I call them sandbaggers. They know who they are.
Scott Deutsche: I think Carlos is a sandbagger too.
Eric Mendelson: I understand that we're just taking these numbers and rolling them up and when we go and talk to them about common, you're performing at this, why is the number going to go down? They've got 22 possible reasons, including a meteor strike and all sorts of crazy stuff that could cause it. And as a result, we really take up the numbers and we even had a positive contingency very often to it because we know that they're low. But it is very -- it's very hard to quantify. And the reason I don't if you will, fight the sandbagging is because it encourages them to look at all of the areas of potential risk. There are all sorts of -- there's -- it's a Herculean effort to achieve these numbers. And there are all sorts of things that can go wrong in the supply chain and with technology and processes, all sorts of things. And they are very much focused on what can go wrong. And as a result, since they work so hard to mitigate those factors, they most of the time, almost always overperform. So that's sort of where we are in it. I mean we're hoping to do better. But based on the numbers that we've gotten, variations in the business cycle, this is what it rolls up to. So, we just sort of go with that.
Scott Deutsche: Okay. Yes, I appreciate that. Eric, I guess, while I have you, if I go back to 2022 and the first half of '23, the Specialty Products was growing like crazy. And I guess a lot of that was driven by munitions, but the growth rate has slowed quite a bit since then. So, I guess my question is, do you have a sense for when we might expect to see Specialty Products return to stronger growth profile and then what you need to see in order for that to happen?
Eric Mendelson: Got it. So, the short answer to that is in fiscal '25, we think is when it's going to happen. I do want to mention that actually, we don't make -- HEICO doesn't make any munitions I think what you're referring to is missile defense. So, we are very active on missile defense interceptors, and we have a high content there on other missile platforms. But typically, it's more in the defense area, although I suppose there is some in the offensive. But we don't make the explosives themselves. When you look at the numbers, we're anticipating next year is going to be very strong. We've had significant ramp-ups in a number of businesses. And we have significant orders on the books. And now we've just got to produce.
Carlos Macau: Record backlog.
Eric Mendelson: Record backlog. We're really very, very good in the Specialty Products area. So I'm anticipating very good results in 2025 on that.
Carlos Macau: But by the way, Scott, one thing to point out with that Defense Business just like in the ETG, it can be incredibly lumpy. And I think that's what Eric is pointing out, you have to ramp to serve these big projects. And their backlog is at record high, and we do expect good things in '25. Not to say this year, I don't expect growth. I'm just '25 on seem to be big growth for us in that area.
Scott Deutsche: Got it. And still margin accretive growth like it's historically been?
Carlos Macau: Yes, on the defense side, that's correct.
Operator: I'll take our next question from Larry Solow with CJS Securities. Please go ahead.
Larry Solow: Great. Thank you. Good morning, everybody. First question, just on the disparity between the really great growth on the parts business, 21% and sort of the mid- to high single digits, it sounds like on repair-service and overhaul. Is that different or part of that difference where you're capturing market share gains? Or is that too simplified the way to look at it?
Eric Mendelson: Yes. I think there are some market share gains there. Larry, this is Eric. There are market share gains. I think that in the parts area. Remember, our business -- we typically ship discrete parts. So, if we've got the part on the shelf, we're able to sell it, whereas in the component repair business, we're really beholden to the supply chain. We can have an LRU that's got a few hundred different part numbers in the bill of material and one part is being held up, which actually is the case in many different businesses, and we can't ship it. And we've got this big backlog, and it's basically just sitting there. And so that's sort of, I think, what's also going on there.
Larry Solow: Got you. And a question maybe for Carlos. Just I did notice there was a bit of a contingency reversal in the quarter. Was that in FSG?
Carlos Macau: Yes, it was. Yes, it was. So, this quarter, we had about -- it was like a net $4 million. It was a $6 million reduction in the contingency, and then we had some inventory reserves we took for our product line. And so, we had about a $4 million net pickup in the margin related to contingent earnout reversal. And that was due to an acquired contingent earnout due to Wencor acquisition.
Larry Solow: Now remember, Wencor itself, yes, go ahead please…
Carlos Macau: Remember, that's on our numbers right now. That's maybe 0.5 point to the margin. Last year, we had, if you recall, in the same quarter we had a $9 million reversal for the renegotiations of a contingent earnout. And that was a little bit more impactful to margins. That was maybe 1.5% or something like that of the margin. So Net-net, it was actually a headwind for us this quarter.
Larry Solow: Year-over-year, but maybe that gives us a little bit of a reason for a little bit of a sequential decline going to the back half of the year. It was a little bit of a benefit this quarter, I guess. And just in terms of Wencor…
Carlos Macau: I appreciate. I appreciate you supporting us on that.
Larry Solow: Yes. Yes, absolutely. Just on one Wencor, Eric, you mentioned sort of this still operating as a standalone. And I think that as the beauty of HEICO and most of your subsidiaries kind of run autonomously. Being that Wencor is so large and somewhat has a lot of similarities in your core PMA parts business and distribution and whatnot. Are there opportunities to sort of merge -- blend those two companies more together than the normal HEICO where you operate?
Eric Mendelson: Larry, so that's a great question. A lot of people have wondered about that. And as you know, HEICO has the unique ability, which you don't typically find in a company of our size to operate businesses in the similar same spaces and to sort of direct traffic so they don't hurt each other and make sure that we maintain the entrepreneurial spirit. And I think that is the single most important thing that we can do. Just last week, I was at the Aerospace Industries Association Board of Governors meeting. And actually, PwC did a wonderful presentation speaking about what's going on in terms of the employment trends in the aerospace market. And what was interesting is that the lack of interest from people with regard to aerospace is not due to the mission of aerospace or even the defense part because some people are sensitive about that. And it's not due to the earnings level. It's due to the fact that when people join large companies, they feel pigeonhole and they don't feel like they have -- they're able to get a good experience. And I think that, that's the unique thing about HEICO. We recognize that there's no question there's synergy. If we can functionally put things together, we can drive certain processes, eliminate costs and do all that. But what it does in the process is it kills the entrepreneurial nature, the enthusiasm, the desire to stay up late, to work late to make sure that you accomplish what your customer needs where you have full responsibility for the product from selecting it, designing it, manufacturing it, procuring and inspecting it, selling it, accounting for it. And this is what is very, very motivational to our team. So, to answer your question, no, there's no plan to put this together. However, there is the opportunity to cooperate. And frankly, with the organic growth that we've got, if we could just have these businesses work together and become more efficient but still retain their entrepreneurial spirit and their individual focus. There are tremendous cost benefits by just giving our internal people the internal promotional opportunities and not having to go outside and hire more people. So, I don't see, if you will, cost synergies in terms of job reductions. But I do see the opportunity for our people to put their heads together and figure out -- we've already gotten to the point where one plus one equals two-and-half, but I think we're going to continue to focus to plus one plus one can equal three or four or five. And that's really the focus. And it's not going to be through job cuts, the way some other companies handle this kind of thing.
Larry Solow: Got it. I appreciate that color. If I could just slip one in to Victor, if you guys don't mind, just 4% organic growth, double-digit dispense on the defense side. What was sort of stand out on the offsets on the negative side that kind of offset some of that growth on the other products. Anything extraordinary there?
Victor Mendelson: Larry, thank you for the question. It's a good question, and I was feeling neglected. So glad to answer a question. But all kidding aside, the weakest part was the other markets, the non-aerospace and defense markets, which you may recall in the last couple or several calls. I said to anticipate that being lower, and I would expect order rates to start to tick up in the back half of the year. I'm not sure whether it's the third or fourth quarter, but we're certainly seeing some green shoots here and there, though not across the board. But that is the case. And it's really a result of customer inventory channels. They had stocked up and much the same way a lot of companies in our industry have done and our industries have done, and I think they're working off those inventories at this point, and that will continue for little bit longer, then you have a lead timing after the orders start to turn. So, we had a little lead time. So, I'm optimistic about those businesses, but I think we have probably I don't know, couple of quarters or so left to go on negative comparisons.
Operator: Our next question comes from Peter Arment with Baird. Please go ahead.
Peter Arment: Thanks for all the details and great quarter. So, Eric, I wondered -- you made in your prepared remarks, you made some comments about kind of the partnership that you -- with Wencor and your traditional PMA business. You mentioned Wencor is utilizing HEICO's manufacturing-based new products. Curious to get more color on that, what kind of opportunity that is for Wencor.
Eric Mendelson: We think it's pretty substantial. Wencor has an excellent vendor base and they remain loyal to that vendor base. They're not, in general, moving product from established vendors who are making it. However, as you know, the industry supply is very tight right now, even in the HEICO businesses. And we have the opportunity to redirect capacity, frankly, in our Specialty Products more towards the HEICO businesses. And I've been out there working with the Head of our Specialty Products Group and I are working with our individual businesses to explain the virtue of manufacturing for HEICO and Wencor as opposed to only third-party customers because when third-party customers, they're great, and we want to stay focused on them as well. But when it's an internal customer, you know very clearly what's going on competitively and we're able to move priorities for them. So and also able to really focus on the quality. I mean, that's been a key focus for HEICO and for Wencor in terms of making sure that the products that we supply are the absolute best in the industry. So, I think this is something that will start to pay dividends in 2025 and after, both in terms of more timely deliveries, our internal customers as well as, frankly, a profit margin that our specialty products companies can make by supplying these high-quality parts to the HEICO companies. There's a lot of stuff that we can do. There are 10 different businesses in our specialty products group, and they all have unique capability. And we -- I think there is opportunity in the vast majority of them.
Peter Arment: Perfect. That's great color. And then just, Eric, just staying with you on just what you're seeing from an international travel perspective, are you seeing any pockets of strength or weakness or anything to call out on a regional basis? Just curious on that.
Eric Mendelson: It's -- so I spoke with all of our sales heads last week and on overall the details, and we're seeing tremendous strength around the world. The Americas remains strong as well as Europe and Asia, Middle East, China. So, we're seeing very good strength across the board. The market seems extremely strong. People want to travel, both for business as well as leisure, so things look good. I wouldn't say there's one or two areas of particular strength. I'd say it's very broad-based.
Peter Arment: Great. And then just quickly on Victor on you had some, I guess, some timing delays in Q1. Just how is the supply chain are looking for your ETG when you think about, obviously, kind of the back half of the year?
Victor Mendelson: Yes, this is Victor. So, I think our supply chain has pretty much returned mostly to normal. I don't think companies talk too much about and focus too much about supply chain issues, small supply chain issues that were in the noise level then. But certainly, people are no longer afraid to do that. But it seems to me as though things are maybe not quite entirely back to normal, but fairly close. There are still some pockets here and there where some lead times are extended or deliveries are delayed but again, I -- my sense of it is that wasn't unheard of before the pandemic either. We just didn't really hear much about it.
Peter Arment: Okay. And your R&D efforts, Victor, I know you guys called that out in Q1, just -- is that for existing orders? Or is there new opportunities that really you're pursuing?
Victor Mendelson: It's a combination. I mean our R&D activities in ETG remain very strong. It's a key part of what we do. And that's for some of customer funded, it shows up as revenue, NRE and things like that. But a lot of it is related to product development for future products. And in the aerospace industry, generally speaking, R&D expenses to start something today, it takes time years before it turns into revenue or meaningful revenue. So, we have to keep that constant investment going. I think it's something we've been very successful with in our subsidiaries have been very successful with over a long period of time.
Carlos Macau: Yes, Peter, we spend roughly 3%, sometimes 4% of sales on R&D. That's pretty consistent. That's what we saw this quarter, company-wide, I should.
Eric Mendelson: And ETG is probably higher than that for a variety of reasons because we have some businesses, ETG is probably above 5% on R&D.
Peter Arment: Appreciate all the details.
Operator: Our next question comes from Bert Subin with Stifel. Please go ahead.
Bert Subin: Thank you for the question. Victor, maybe just to start with you. You get some good color on ETG, what's in there. You've seen a little bit of volatility in our organic growth over the last several quarters as we think forward, do you expect that to stabilize? And do you still see that group in track for the mid-single-digit growth you thought you would see in '24?
Victor Mendelson: Yes. Historically, this has been the case for ETG that it's volatile growth quarter-by-quarter. And I would expect that to continue to be the case. I don't think we've suddenly reached a different run rate. But I think the overall trend is a positive and upward trend, that's supported by the backlog, it's supported by quote activity and other things.
Bert Subin: Got it. Okay. And then, Eric, one for you.
Victor Mendelson: And Carlos is going to add that.
Carlos Macau: I just want to add Bert, we still expect low to mid-single-digit growth in ETG for the year, which that statement implies volatility if you think about what we've done to date versus the next two quarters. So, I think Bert is right, it’s going to be up and down, but we do expect the low to mid-single-digit growth for the year organically.
Bert Subin: Got it. Okay. On the FSG side, just a question for you, Eric, maybe just a little more-high level. A lot of what you're seeing would seem like on the volume side for parts and in terms of what you're expecting in repairs has been driven by a variety of macro features. But largely the combination of the aging global fleet air travel demand, what we've seen there and just depressed inventory. Carlos, you made some comments about some normalization in what you're seeing today over time. Like how do you think about those macro trends as you look out? It sounds like from what you were saying, Eric, you seeing strength across the board. Is there anything concern you that, that might change in the near term?
Eric Mendelson: So, Bert, that's something that we think about all the time. However, in order to be in this industry, you've got to really have a long-term view. And we never know what's going to come around the corner, but we've got to be well positioned for everything. So, we're fundamental believers in commercial and military aviation. We think that these are really good spaces to be in. We understand them extraordinarily well. We're really appreciated by our customers. Yes, there is tremendous strength, yes, there is a certain percentage of the fleet that's down as a result of issues that are going on, but we also have a fleet -- a massive fleet of 20,000 something to aircraft that's aging one year per year. And most of the other major players out there increased price very substantially. So, we think that we're in a very good area, could there be a little air pocket here or there, sure, that could absolutely happen, but that's why we don't like to be over-levered. And we want to make sure that we've got plenty of cash to always do the right thing to continue our successful acquisition program, which is key to everything we do. And we're going to be very strong no matter what happens out there. So and then also to point out the obvious, I mean, every roughly nine years, 10 years or so, there's always some black swan event. The last one, of course, is the most dramatic but look at how strong we've emerged from it. And when we look at our sales as a percentage of what we were doing in 2019, I mean, this company has absolutely transformed for the better and grown tremendously, both organically and via acquisition since then. So, we don't worry about, if you will, the little air pockets or what could be happening down the road. I mean I could paint a scenario where, I mean, look, we hope that the new manufacturer gets strengthened out because we have -- we can benefit very well as a result of that. And we hope the world economy remains strong and people want to trap and all that capacity is soaked up, it becomes impossible for any anybody to calculate. So, we just keep our heads down and focus on the business, and I'm very confident we're going to do well.
Bert Subin: Thank you, Eric. Just one quick follow-up for Carlos. On the interest expense side, Eric just mentioned not wanting to over leverage. You guys started to pay down some debt. Should we still expect interest expense to sort of follow the same glide path that you were talking about last quarter?
Carlos Macau: Yes, I think so I think I'm not counting on any movements really in the interest rate. We probably will wind up running 30 -- I think we ran $38 million this quarter. It's probably going to be down $1 million each quarter after this or so just from debt from principal paydowns. So that's probably what we're going to see this year as we continue to delever that will be the interest expense.
Operator: We'll take our next question from Kenneth Herbert with RBC Capital Markets. Please go ahead.
Kenneth Herbert: Good morning and a really nice quarter. Eric, maybe just to start off. When we think about your -- the aerospace sales within the FSG segment, can you remind us the mix of what you're selling that's under long-term contracts versus maybe what was more book and ship?
Eric Mendelson: I don't have that information in front of me. But our -- I'm getting it's in when you go across all of the businesses, I'm guessing it's in sort of the 50-50 area. But I don't have that specific information. As a result, as I mentioned earlier, as a result of the decentralized structure. We don't capture a lot of that information. But my guess is it's probably around the half and half area.
Kenneth Herbert: Okay. And are you maybe organizationally trying to skew maybe one way or the other is you have contracts coming up for renewals, say, with some of your large airline customers are you trying to in the businesses drive them to maybe more of a book-and-ship scenario? Or strategically, is that something you're comfortable to citing the operating units do what's best?
Eric Mendelson: Well, so my comment about the 50-50 is looking at our entire parts business, which includes both PMA and distribution. So, I think the distribution will probably due to less contracts, in other words, less than 50%, and the PMA would be more than 50%. So that's sort of the dichotomy there that I was looking at. Our customers with regard to PMA, they like the idea of having a long-term agreement, and we like that idea too because we can go out and procure the product for them and protect them. Clearly, if they want to be protected on price, we're happy to do that. But in turn, they've got to commit to us. So definitely, on the PMA side, the percentage of contracts would be -- I'm guessing well over 50%.
Kenneth Herbert: Okay. Okay. That's helpful. And then maybe just finally, Victor, to put a finer point on sort of the lumpiness. You're up against some pretty tough comps within the Defense and Space sales within ETG in the second half of this year, especially in the fourth quarter. Do you -- is it fair to assume that you're seeing backlog that we should still see growth in the defense businesses into the back half of this year? Or could we maybe see those down a little bit just considering the strength in the back half of '23?
Victor Mendelson: Yes, I'd like to see how it plays out. I'm feeling good at the moment about the third quarter. And I think the fourth, if I look at the shipment schedules, it's flatter, more challenging. But I think we had like a 6% organic growth. I think in Q4 ETG last year so that's a tough comp. Yes, so it's going to be a tough one. I think we have to let play out. We'll see where it goes. I don't think it's so easy, but we'll see where it goes.
Operator: Next question comes from Sam Struhsaker with Truist Securities. Please go ahead.
Sam Struhsaker: Sam on for Mike Ciarmoli. Nice quarter. I was just curious kind of looking at the support -- or sorry, the strength in aftermarket. Could you guys maybe try and break that out a little bit more. Was there any particular areas of strength or weakness, whether it be across airfreight engines interiors or even not weakness, but certain areas that you were seeing more growth from versus others?
Eric Mendelson: I would say, overall, it was very broad-based. In the quarter, it's hard to sort of get into it by particular product type and that can be sort of heavily skewed depending on what inventory packages are taking place. So, at the moment, I think it would be misleading for me to get into that because people would extrapolate and view it perhaps not correctly. If you don't mind, I'd rather punt and talk about that perhaps next quarter as we start to see some of this. But as I mentioned earlier, it does appear to be very broad-based the support is really broad-based.
Sam Struhsaker: Fair enough. And then obviously, you guys are still sort of working on the integration of Wencor, but how are you guys kind of thinking about M&A going forward in the long term?
Eric Mendelson: We are fully 100% committed to M&A. It is a key part of HEICO's strategy, and it drives a nice chunk of our growth. We as you can see, we were over 3x levered after we completed the Wencor acquisition. And then we also purchased the Honeywell (NASDAQ:HON) display unit product line. Now we're down to 2.45x. Our M&A teams are very, very focused in finding great companies. We're in discussions with many. We work really hard to be the acquirer of choice. I think that we are sort of lucky and fortunate in that our competitive advantage is this decentralized model, which appeals to people very well. I mean, I can tell you, when I visit companies, even in processes, I would say, at least four out of five leadership teams tell us that HEICO is their preferred acquirer. And of course, who knows what they tell all the different bidders out there. But I really do believe that our approach is unique and people want a part of it, and we are very, very much focused. And also, it's supported by our customers. I mean it was our customers who wanted and we were so excited about the Wencor acquisition because we could put these two product lines together and really offer much more of a competitive offering to our airline customers. I mean they were the ones most supportive of doing this. So ,we're going to remain very, very active in that area.
Operator: We'll take our next question from Louis Raffetto with Wolfe Research. Please go ahead.
Louis Raffetto: Great. Eric, just a couple for you. I think FSG sales were up about 5% sequentially, but if I look at your acquired growth and thinking about Wencor in the Honeywell product line, it looks like Wencor sales were flat to even down sequentially while legacy was up mid-single digits. Is that sort of the right way to think about it?
Eric Mendelson: I mean, we don't get into the specifics, but no. I mean, I wouldn't say that on Wencor sales were down. I mean Wencor quarter is performing extremely well. They're way up as compared to last year. So, they're performing well. I mean, look at any of the businesses, you've got this -- we're at the mercy of the supply chain. And I can tell you that we've got a lot of suppliers who are very, very late. And that can sway quarters significantly actually. But Wencor is performing extraordinarily well, winning new business, we couldn't be happier.
Louis Raffetto: All right, appreciate the insights. And Interesting to hear about, you got the only one mentioned the parts supply is sort of limiting the MRO. So just good for that insight. And I guess you would -- I know Eric kind of confirmed the low or Carlos confirmed the low to mid-single-digit growth for ETG. I mean, I think you guys kind of laid out high single-digit to low double-digit growth for FSG. I mean it seems like you're certainly going to be at the high end of that, if not above that. Is that a fair assumption?
Carlos Macau: I think, we're going to stick with the high to low double-digit growth for the year. I think that's still a good assumption, Louis.
Operator: And next, we'll take our question from Gautam Khanna with TD Cowen. Please go ahead.
Gautam Khanna: Thanks for staying on and talk to Eric. So, I was curious, how far long are you guys on kind of introducing when course product suite to your -- to HEICO's legacy airline customers and vice versa? I know there was a whole the comment when the deal was announced that Wencor was bigger with the MRO facilities than with HEICO and you guys were stronger at the airlines. I'm just curious like how much time does it take to kind of make those introductions and have those -- the product catalog added to the contracts that you guys already have each of those companies already have.
Eric Mendelson: Yes. So, Gautam, I think what you're referring to is we said that historically, Wencor originally got its it sort of focus was more in the repair stations. They still dealt with the airlines, but more of their focus originally was in the repair stations, and it was sort of vice versa with HEICO. But I can tell you that the cooperation is going extremely well. We are -- both companies are helping each other. And there are airline customers where Wencor had more of a presence in their airline customers where HEICO had more of a presence. And we are introducing the folks on both sides so they can go ahead and take advantage of those relationships in that history and be able to sell the products. So, I think that, that is happening as we speak. And I anticipate that that's going to continue to occur in 2025. I think we will continue to see the very good results in that area.
Gautam Khanna: Has there already been traction like commercial traction you guys are already getting sales from some of that cross-selling opportunity? Or is it still on the comp?
Eric Mendelson: No, no. We have received sales on it. And I think that's one of the reasons you see the organic growth rate, and you see the margins that we have because we've already realized the benefits. I think there's a lot more to come. And -- but we recognize them thus far.
Gautam Khanna: Got you. That's helpful. And then, Carlos, I know you addressed this earlier in the call, but just do you have a better sense of the long-term FSG margin framework? At one point, it was 22% long term. I know there's reasons you guys are over that now. But is that still kind of the right bogey longer term with Wencor? Or do you think it could be structurally higher than?
Carlos Macau: I think the long-term margin probably is around that 22% rate. And I do think that if you look back over the -- if you sort of ignore the COVID period and look back over the decade prior to that, you will see that our margin is pretty consistent and that every year, we get a little improvement in it. I think we're going to be -- we're heading towards that pace to where we get back as I mentioned earlier, to a normal footprint within the segment when the mix is kind of what it used to look like, and then we move forward from there and he got those little efficiencies. That's my expectation long time.
Eric Mendelson: And of course, Gautam, this is Eric. We've got, as I mentioned, in the quarter, we had 280 basis points from intangible amortization. So, you add that and we're really approaching 25% on an EBITDA basis, which is outstanding.
Gautam Khanna: Yes, absolutely. And then last one, Eric, just in terms of product introductions, I know in the past, you talked about 300 to 500 PMA parts developed each year. What's the right number now that you own in Wencor have some experience with them? Is it higher than that? Or is it a number, 300 to 500.
Eric Mendelson: Yes. I would think it's closer to the 500 area. Wencor continues to focus and develop a very aggressive number of products. HEICO, obviously, the same. The key is getting all those parts manufactured and getting the airlines to buy them. So, we've got the capability, and we continue to we're not going to cut back in any of that area.
Operator: And we'll take our next question from Louie DiPalma with William Blair. Please go ahead.
Louie DiPalma: Eric, Victor and Carlos, good morning. One of the recurring themes on both the ETG side of the business is your ability to consistently introduce new products to the market. You just mentioned the target of 500 new PMA parts per year. Similarly, I was wondering what is ETG doing in terms of new products per year. And is there still a long runway? And is the Ukraine more inspiring new ideas and demand for new types of products?
Victor Mendelson: Louie, this is Victor. Thank you. It's a very good question. I don't know the number of new products and new part numbers we actually introduced in the ETG each year because it's a very large number, and we have so many subsidiaries. But one of the things that we do look at when we meet with the Company is each year, we do an annual meeting and do a budget review and a bottoms-up budget. We do look at with each one their new product introduction. And it is a very active and regular rate. And I think it's -- my sense of it is it's probably higher than most people I see in the industry. So very, very happy with that. And that will continue, and that was my lesion earlier to the R&D spending and why it's so critical for us to do in good times or in bad, we don't cut R&D spending if the business is weaker in a particular moment because ultimately, that's our salvation, right? And that's how we grow the business over time. And we look at it on a very long-term basis. In terms of Ukraine, yes, Ukraine has meant more new product introduction in some of our businesses and has stimulated sales in a number of our businesses as well. And it's -- Ukraine's had an interesting effect because I think it is reminded our allies in Europe, our friends of the need to expand their defense spending sustainably in long term. And that's happened, right? And that's happening, and we're seeing more investment there. The Company we acquired, we completed the acquisition in January 23 of Exxelia, which is a company headquartered in France with significant operations and sales in Europe. And that was one of the things that attracted us to that business was the opportunity to offer products to our friends and allies as well as, by the way, here in the U.S. and the Ukraine war does have an impact on U.S. companies. And obviously, as we know, what the U.S. supplies. So, I would expect that to continue. And then when that conflict in, and I hope it is soon, of course, but when that ends, I think it will have an enduring effect on how people look at defending themselves and what they spend to do it.
Louie DiPalma: Great. And I think you have a number of microwave product and components. Are you supplying to some of the microwave OEMs in terms of like air defense and counter drone functionality?
Victor Mendelson: Sure. And of course, as you can imagine, I can't point out specific programs, but I can say that is part of -- that is definitely part of the business and it's within the end of what we do.
Operator: And that concludes today's question-and-answer session. At this time, I'll turn the conference back to you for any additional or closing remarks.
Laurans Mendelson: So, this is Larry Mendelson. I want to thank everybody on this call for their interest in HEICO. We look forward to speaking with you when we report third quarter results and that will be some time about three months from now. So meanwhile, have a very good summer, enjoy summer, be safe. And HEICO will, I believe, do extremely well. Thank you, 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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