HEICO Corporation (HEI) Q1 2016 Earnings Report, Transcript and Summary

Good morning. My name is Hillary and I will be your conference operator today. At this time, I would like to welcome everyone to the HEICO Corporation Fiscal 2016 first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Certain statements in this 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 as a result of factors including, but not limited to: lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product development or product specification costs and requirements, which could cause an increase to our costs to complete contracts; governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and product pricing levels, which could reduce our sales or sales growth; product development difficulties, which could increase our product development costs and delay sales; our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk; interest, income tax rates; and economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues; and defense budget cuts, which could reduce our defense-related revenue. Those 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 statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. Thank you. Laurans Mendelson, you may begin your conference. Laurans A. Mendelson - Chairman & Chief Executive Officer: Thank you very much and welcome to everyone who is on this call. We appreciate your interest in HEICO. And we're going to try to make this interesting. We did have a fantastic, fabulous, unbelievable first quarter as Donald Trump might say. I'm Larry Mendelson, Chairman of HEICO and CEO. I'm joined here this morning by Eric Mendelson, who is connected remotely; he is out of town. He is 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. Tom Irwin, HEICO's Senior Executive Vice President; and Carlos Macau, our Executive Vice President and CFO. Now, before reviewing the first quarter operating results in detail, I would like to take a few minutes to summarize the quarterly highlights. Consolidated adjusted net income increased 20% to $33.2 million or $0.49 per diluted share in the first quarter of fiscal 2016. And that was up from $27.6 million or $0.41 per diluted share in the first quarter of fiscal 2015. Consolidated adjusted operating income increased 20% to $55.8 million in the first quarter of fiscal 2016, that was up from $46.4 million in the first quarter of fiscal 2015. Additionally, HEICO's adjusted operating margin increased to 18.2% in the first quarter of fiscal 2016, and that was up from 17.3% in the first quarter of fiscal 2015. The previously mentioned adjusted results exclude the impact of $3.2 million of acquisition cost, really an investment advisory fee, which HEICO incurred in connection with the fiscal 2016 acquisition. These are one-time non-recurring costs. And due to the atypical nature of these acquisition cost, we believe that highlighting these non-GAAP measures are helpful to investors in evaluating the company's earnings performance on a comparable basis to the first quarter of fiscal 2015, as well as to other reporting periods, both past and future. Consolidated net sales increased by a very strong 14% to $306.2 million in the first quarter of fiscal 2016, and that was up from $268.2 million in the first quarter of fiscal 2015. As many of you know, HEICO's management philosophy begins with a laser-focus on cash generation. Cash flow from operating activities was very strong, and increased 53% to $45.2 million in the first quarter of fiscal 2016, representing 144% of net income, and that compared to $29.5 million of cash generation in the first quarter of fiscal 2015. As of January 31, 2016 the company's net debt to shareholders' equity ratio was a very low 61.3%, with net debt of about $565 million. In addition, our EBITDA, debt to EBITDA was below 2 turns. So very, very unlevered balance sheet. That includes the expenditure and the borrowing or the resent Robertson acquisition. The Flight Support Group's operating income increased 16% on a 12% increase in net sales in the first quarter of fiscal 2016. The ETG operating income increased 15% on a 17% increase in net sales in the first quarter of fiscal 2016. In December 2015, our ETG group (sic) [ETG] (07:09) acquired certain assets of a company that designs and manufactures underwater locator beacons used to locate aircraft cockpit voice recorders, flight data recorders, marine ship voyage recorders and other devices, which have been submerged underwater. This was a bolt-on acquisition and it expands our current product offering of niche components, primarily in commercial aerospace market. We previously reported in January 2016 that our ETG group (sic) [ETG] (07:47) acquired all of the interest of Robertson Fuel Systems. Robertson is a world leader in the design and production of mission-extending, crashworthy, and ballistically self-sealing auxiliary fuel systems for military rotorcraft. The acquisition is consistent with HEICO's practice of acquiring outstanding niche designers and manufacturers of critical components in the defense industry and will further enable HEICO to broaden its product offerings, technologies and customer base. We expect both of these acquisitions to be accretive to our earnings within the current fiscal year. In January 2016, we paid a semi-annual cash dividend of $0.08 per share. This was our 75th consecutive semi-annual cash dividend since 1979, and it represents a 14% increase over the prior semi-annual per share amount of $0.07. I would now like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group. And he will discuss the results of the Flight Support Group. Eric, please? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Thank you. The Flight Support Group's net sales increased 12% (09:13) in the first quarter of fiscal 2016, up from $182.1 million in the first quarter of fiscal 2015. The increase mostly reflects net sales contributed by our fiscal 2015 acquisitions, as well as additional net sales from our specialty products and aftermarket replacement parts product lines, principally from increased demand in new product offerings. These increases were partially offset by lower organic mix sales from our repair and overhaul services product line, principally resulting from an adverse impact due to the mix of products repaired during the first quarter of fiscal 2016, which required less extensive repair and overhaul services in addition to softer demand from our South American market. The Flight Support experienced organic growth of 1% in the first quarter of fiscal 2016. Excluding the organic net sales decrease in our repair and overhaul services product line, the Flight Support Group experienced organic revenue growth of 6% in the first quarter of fiscal 2016. We continue to estimate the Flight Support Group's full-year net sales growth to be between 8% and 10%, of which approximately half is anticipated to be organic growth. The Flight Support Group's operating income increased 16% to $35.5 million in the first quarter of fiscal 2016, up from $30.7 million in the first quarter of fiscal 2015. The increase is mainly attributed to the previously mentioned net sales growth and a more favorable product mix within our specialty products and aftermarket replacement parts product lines. The increase was partially offset by the previously mentioned less favorable product mix within our repair and overhaul services product line, an increase in amortization expense of intangible assets recognized in connection with the fiscal 2015 acquired businesses and higher performance-based compensation expense. The Flight Support Group's operating margin increased to 17.3% in the first quarter of fiscal 2016, up from 16.9% in the first quarter of fiscal 2015. The increase principally reflects the previously mentioned more favorable product mix in our specialty products and aftermarket replacement parts product lines, partially offset by the increase in amortization expense of intangible assets in performance-based compensation expense. We continue to estimate full-year Flight Support Group operating margins to approximate that of fiscal year 2015. Now, I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group to discuss the results of the Electronic Technologies Group. Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: Thank you, Eric. The Electronic Technologies Group's net sales increased 17% to $104.2 million in the first quarter of fiscal 2016, up from $89.2 million in the first quarter of fiscal 2015. The increase mostly reflects net sales contributed by our fiscal 2016 and 2015 acquisitions, as well as organic growth of 4%, principally resulting from increased demand for certain space and defense products. With respect to the remainder of fiscal 2016, we estimate the Electronic Technologies Group's full-year net sales growth to be between 27% and 30%. We continue to estimate the Electronic Technologies Group's organic growth to be in the mid-single digits for fiscal 2016. The Electronic Technologies Group's operating income increased 15% to $22.3 million in the first quarter of fiscal 2016, up from $19.4 million in the first quarter of fiscal 2015. The increase is mainly attributed to the previously mentioned net sales growth and a more favorable product mix for certain space and defense products, partially offset by the one-time non-recurring acquisition costs associated with the fiscal 2016 acquisition and an increase in amortization expense of intangible assets recognized in connection with the fiscal 2016 and 2015 acquired businesses. The Electronic Technologies Group's operating margin was 21.4% and 21.8% in the first quarter of 2016 and 2015, respectively. The slight decrease reflects the previously mentioned impact of the one-time non-recurring acquisition costs related to the Robertson Fuel Systems acquisition and an increase in amortization expense of intangible assets related to the 2015 and 2016 acquisitions, partially offset by the previously mentioned higher net sales and more favorable product mix for certain space and defense products. I think it's very important to note that the actual operating margin of the Electronic Technologies Group was about 24% if you exclude the impact of the one-time non-recurring acquisition costs. With respect to the remainder of fiscal 2016, we estimate the Electronic Technologies Group's full-year operating margin to approximate 24%. And I turn the call back over to Larry Mendelson. Laurans A. Mendelson - Chairman & Chief Executive Officer: Thank you, Victor. Moving on to earnings per share. Consolidated adjusted net income per diluted share increased 20% to $0.49 in the first quarter of fiscal 2016, and that was up from $0.41 in the first quarter of 2015. Consolidated GAAP net income per diluted share increased to $0.46 in the first quarter of fiscal 2016, and that was up from $0.41 in the first quarter of fiscal 2015. As previously mentioned, one-time non-recurring acquisition costs totaling $3.2 million were incurred in connection with a fiscal 2016 acquisition. These acquisition costs reduced our consolidated net income per diluted share by $0.03 in the first quarter of fiscal 2016. Depreciation and amortization expense increased to $13.9 million in the first quarter of 2016, up from $10.9 million in the first quarter of fiscal 2015. The increase principally reflects the incremental impact of higher amortization expense of intangible assets attributable to our fiscal 2015 and 2016 acquisitions. Research and development expenses totaled $9 million and $9.3 million in the first quarter of fiscal 2016 and 2015, respectively. Significant ongoing new product development efforts are continuing at both Flight Support and ETG, as we continue to invest approximately 3% to 4% of each sales dollar into new product development. Our effective strategy for the last 25 years has been to reinvest a portion of our earnings into the development of new products and services that we can offer at lower cost to our customers, and that in turn facilitates our market growth, and that's sufficient to meet our growth goals. SG&A expenses were $59.6 million and $47.4 million in the first quarter of fiscal 2016 and 2015, respectively. The increase principally reflects the impact from the fiscal 2016 and 2015 acquisitions in addition to an increase in performance-based compensation expense. SG&A expenses as a percentage of net sales were 19.5% and 17.7% in the first quarter of fiscal 2016 and 2015, respectively. The increase principally reflects the impact from the previously mentioned acquisition cost, as well as the impact from increases in performance-based compensation expense and amortization expense of intangible assets recognized in connection with the fiscal 2016 and 2015 acquired businesses. Interest expense increased to $1.6 million in the first quarter of fiscal 2016. That was up from $1.1 million in the first quarter of fiscal 2015. That increase was principally due to a higher weighted average balance outstanding under our revolving credit facilities. And that was associated with the fiscal 2016 and 2015 acquisitions. Other income and expense in the first quarter of both periods was not significant. Our effective tax rate in the first quarter of fiscal 2016 decreased to 29% from 29.5% in the first quarter of fiscal 2015. That decrease principally reflects the benefits from HEICO's decision to not make a provision for U.S. income taxes on undistributed earnings of a fiscal 2015 foreign acquisition. In addition, our effective tax rate in both the first quarter of fiscal 2016 and 2015 reflects a similar economic benefit from a retroactive extension of the U.S. Federal R&D tax credit that resulted in additional income tax credit recognized for qualified R&D activities for the last 10 months of the respective prior fiscal year. Net income attributable to non-controlling interest was $4.7 million in the first quarter of 2016 compared to $4.5 million in the first quarter of fiscal 2015. For the full fiscal 2016 year, we continue to estimate a combined effective tax rate and non-controlling interest rate of between 39% and 40% of pre-tax income. Now, moving on to the balance sheet and cash flow. Our financial position and forecasted cash flow remains very strong. As we previously discussed, cash flow provided by operating activities was extremely strong, increasing 53% to $45.2 million in the first quarter of fiscal 2016, and that represented 144% of net income, that compared to $29.5 million cash flow in the first quarter of fiscal 2015. The increase in net cash provided by operating activities in the first quarter of 2016 is principally attributed to a decrease in working capital, mainly from the collection of previously reported strong net sales in the fourth quarter of fiscal 2015, as well as previously mentioned increase in the net income from consolidated operations. Our working capital ratio of 3.4 continues to remain strong as of January 31, 2016, and that was up from 3.0 as of October 31, 2015. DSO, or days sales outstanding and receivables were 52 days, both January 31, 2016 and January 31, 2015. As you all know, we continue to closely monitor all receivable collection efforts in order to limit our credit exposure. We have historically very small losses on accounts receivable. No one customer accounted for more than 10% of net sales, our top-five customers represented about 18% of consolidated net sales in the first quarter of 2016, and that compares to 17% in the first quarter of 2015. As we expected, our inventory turnover rate increased due to the impact of the January 2016 acquisition and that was 130 days for the period ending January 31, 2016, up from 120 days for the period ending January 31, 2015. If you exclude the impact of the acquisition, the inventory turnover rate was 120 days in both periods. Our net debt to shareholders' equity was 61.3% as of January 31, 2016 with net debt of $565 million, principally incurred to fund acquisitions, which were made in fiscal 2015 and 2016. I've mentioned before that our debt to EBITDA is under 2 turns. We have no significant debt maturities until fiscal 2019, and we plan to utilize our financial flexibility to aggressively pursue high-quality acquisition opportunities such as our recently completed acquisition of Robertson Fuel Systems, and we hope that will accelerate growth and of course, maximize shareholder return. Now for the outlook. As we look ahead to the remainder of fiscal 2016, we do anticipate overall moderate organic growth within Flight Support, resulting from increased demand across all product lines. Additionally, we currently expect overall moderate organic growth within ETG, resulting from increased net sales for the majority of our products. During the remainder of fiscal 2016, we plan to continue our focus on new product development, market penetration, executing our disciplined acquisition strategy, and maintaining our financial strength. Based on our current economic visibility, we are increasing our estimated consolidated fiscal 2016 year-over-year growth in net sales to 14% to 16%, and in net income, 10% to 13%, and that's up from prior growth estimates in both net sales and net income of 8% to 10%, which we gave in December. And our consolidated operating margin is projected to be 18.5% to 19%. In addition, we anticipate depreciation and amortization expense of approximately $63 million, CapEx to approximate $32 million, and cash flow from operations to approximate $220 million. In closing, we will continue to focus on intermediate and long-term growth strategies with an emphasis on acquiring high cash generating and profitable businesses at fair prices. That is the extent of our prepared remarks, and I would like to open the lines for any questions. Thank you, all.

Your first question comes from the line of Ron Epstein.

Hey, guys. Good morning, guys. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning, Ron.

Quick question for you. We've seen in the data that we collect that aircraft retirements have come down, right? They peaked in a couple of years ago, and it looks like they were down year-over-year in 2014 over 2013, and now it's like 2015 is down over 2014. Are you seeing any impact to that presumably positive, but I'm not sure, on your business? Laurans A. Mendelson - Chairman & Chief Executive Officer: Eric, do you want to answer Ron's question, please? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Good morning, Ron. We have seen a little bit of an impact with some aircrafts that had scheduled to be retired receiving some additional service and needing parts. We haven't seen any major impact of that up until this point. But we are cautiously optimistic that there will be some coming along. In terms of just a little bit of color, the way we look at it is, of course, (26:47) with high oil prices and with the financial crisis, a lot of maintenance was, if you will, deferred in the 2007, 2008, 2009 time period. 2010 was sort of maintained that level, and there was a lot of maintenance that was performed in roughly 2011, 2012, 2013 in that area. And we had organic growth in the number of quarters, I think north of 20% or in the high-teens at that period of time. And now, what we're seeing is a little bit of a steadying in demand, again, those aren't falling off , but it's sort of flattish as compared to where it was back then. And as some of these aircraft age, it will require maintenance. Now, we are anticipating that a number of them will be taken out of service, and we are not anticipating a certain aircraft needing additional service. So that is not built into our models. So I think that there has been, if you will, a bit of a maintenance holiday and the lack of need of maintenance as the result of all of the maintenance that was done in there roughly 2012, 2013, 2014 – or 2011, 2012 and 2013 time period.

So just as a follow-on, if we were to see oil kind of stuck in a $30 to $40 range implying you'd see retirements return to sort of a more – as a percentage of the fleet, a more normal number, maybe 1.5% of the fleet gets retired, so you'd have more older airplanes flying around. You're cautiously optimistic. Not to put words in your mouth, but that's good for you? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Yes. Definitely, low oil prices are very good for us. A number of the analysts have run numbers showing that with low oil prices, the original justification for buying new aircraft is not there, and so we think it would be definitely be good for us.

All right. And maybe just one big question for all three of you guys, and I'll let you decide who wants to answer it. Could you highlight maybe one or two of the new product areas that you're investing in that you're most excited about? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Again, we normally stay away from specific products or customers or competitors, because the moment we say something, we've got our competitors on the line right now. But I can tell you that due to our decentralized nature, all of our business units are working on new product development and have a lot of new things in the pipelines that they're all very excited about. Not all of them are going to hit, but we're very encouraged that we've got a lot of very interesting things in the pipeline right now.

Okay. Great. Thank you very much. Laurans A. Mendelson - Chairman & Chief Executive Officer: Ron, this is Larry. I just want to kind of underscore what Eric said. As I look across the whole line of businesses that we're in, I can tell you that we have no business that I'm saying, oh my goodness, this is a real problem. This is difficult. Some are more outstanding than others. And if you met the people that run these businesses, they are truly extraordinary people. And I give them the credit for the great success of the company. But whether it's in our space business, or our parts business, the MRO business and the new Robertson business, the people at the head, the Presidents, the unit leader, business unit leaders are really fantastic. We have also selected, as you know, businesses that have by their nature some protection, some mote, something that protects our margin. We don't like low-margin businesses. So when we have one business that's doing – just to use a number, 25% operating margin and other ones doing 42%, just throwing a number at, how do you say, well, one is better? They're both fantastic. And so I would say that across the board, I think that we're really – all of the areas that we operate in, I'm very, very pleased. And I look for continued growth in very – probably in all those areas.

All right. Great. Thanks, guys. Laurans A. Mendelson - Chairman & Chief Executive Officer: Thank you.

Your next question comes from the line of Larry Solow.

Hi. Good morning, guys. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning, Larry.

Perhaps a question for Eric maybe. Could you just characterize a little bit more on the issues with repair and overhaul, it seems like the mix will be probably more temporary and maybe the issue was South America, maybe not as much. And can also remind us how much of FSG is approximately repair and overhaul? Thanks. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Well, with – good morning, Larry. With regard to South America, I think everybody is pretty well aware of the economic turmoil down there due to low commodity prices. So we believe that there has been, if you will, a deferral or a push-out in demand for aircraft parts, as well as repair services. Again, not doing anything inappropriate and there is nothing – they're not breaking any of the requirements in order to overhaul these (32:36). But they're optionally deciding to defer what they can go ahead and defer. So I think that it is a temporary thing. They're not going to be able to do this long-term, because the – some of these things are going to require more heavy maintenance. So we anticipate that should return to normal sometime down the road. However, the way I'm looking at it is, we've got a lot of good projects in the pipeline. So I think that either the market returns back to where it's been historically or some of our new projects take off. And we're cautiously optimistic that at least one of those will happen. So that's the basis for our optimism in this area.

Got it. Okay. And then, just switching gears real fast, just in terms of the outlook for 2016, clearly most of that, or I guess it's really primarily for Robertson. So you've increased your sales outlook by about 6% and net income by about 3%, and it looks like D&A is $6 million higher. Can I assume that a good portion of that D&A is A and that's also impacting net income but is non-cash? Laurans A. Mendelson - Chairman & Chief Executive Officer: Carlos, do you want to address that (34:02)? Carlos L. Macau - Chief Financial Officer, Treasurer & Executive VP: Sure. Right. Yeah, you can assume that. Most of the increase in the ETG segment and in the FSG segment is due to A in the D&A area and keep in mind that Robertson is defense, primarily a defense company, and is housed and resident within our ETG segment.

Got it. Okay. Great. Thanks.

Your next question comes from the line of Ken Herbert.

Hi. Good morning. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning, Ken.

I wanted to first, Victor, if I could, Robertson obviously, if not the largest, one of the largest deals you've done, can you provide just some more color on obviously, sort of your expectations for growth in this business, anything on the strategic rationale and specifically how we should think about or how you're thinking about margins in this business over 2016 and into 2017 and the opportunity to expand the margins? Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: Ken, yeah. This is Victor. You're right, it was our largest acquisition we've made to date. In terms of the strategic view on this business, it fits very well with our niche sub-component, maybe up to sub-system level products. This, to us, we view it really as a component or a subsystem that is mission-critical. It is high-reliability, so it fits perfectly with what we do in this business. And it is a required product in the applications where it goes – on the wide array of helicopters. What we love about it is several things. One, is it is what we consider to be a healthy margin business. Now, we don't break out what those are, but we've said publicly we don't make acquisitions typically unless there is at least a 20% operating margin. So it does fit within our criteria on the margin side. And usually businesses don't attain these kinds of margins unless they're doing something special, and they're doing things very well, and they do that over a long period of time, which Robertson met those characteristics as well – and where they have kind of a long lead ahead of where others might be able to do it or attempt to make these products. So that was attractive to us. We were attracted to the fact that they were coming off of the combined impact of the defense draw-downs both on the budgets in Iraq and Afghanistan, which had particularly impacted the helicopter community as well as the ground community. And they historically have been a helicopter product company. So that market is growing again and has been growing for them over the last couple of years. In addition, they have a very large installed base, over 11,000 fuel systems out there that are really reaching the ages at which they will require maintenance repair or replacement in increasing amounts. I don't think that that's going to be a huge market overnight for us, but that is something that offers growth over time, as well as sort of security, if the mini market if you will, the OE kind of market were to soften. So we like that. In addition, we believe, as does Robertson's management and a lot of other people, and I think you've probably seen some of the press coverage over – of it over the last few months that there will be a requirement at some point in time to use crashworthy fuel systems on some commercial helicopters. And even if the requirement is slow in coming, a number of operators have said very clearly that they intend to install crashworthy fuel systems on their rotorcrafts. So all of that was really what drove us in this business and, of course, the fact that we were very impressed with the team, the entire team at Robertson – from the CEO all the way through the organization, the operation. And it's been in business a long time, so they're seasoned operators. They know what they're doing. They are very well-regarded in their industry. And in fact, when we did the customer due diligence, because we always do that in our acquisitions. We talk to the customers and we get to the customers in a variety of ways, both through the acquisition candidate and through kind of triangular means. And when we do that, that is really the most telling part of our due diligence. And I have never heard such adoration of a company by customers than I've heard in this deal, in Robertson. And I can tell you, in all of our acquisitions, the customers are very, very fond of the companies we buy. So this was beyond what I've heard in the past and these are from very demanding government customers by the way – very, very demanding customers. So putting all that together, that's what we like about it. In terms of the growth, we would expect the business to grow over time. We, internally, always plan for fairly low growth in our own models that we put together. And if we do better, then we're very happy. If not, we know that at least what we've bought was the right deal and it was accretive both in a cash sense and an EPS sense. And I think that for the reasons we talked about – I mentioned just before, I think that this will be a very good acquisition for us. So far, it's been five week, six weeks whatever. It's been – we've been very happy. Of course, that doesn't make a company, a five-week, six-week period of time. We plan to own it forever and we'll see how it goes, but so far so good.

Victor, I really appreciate the detail there. Can you indicate how the sales break out today in terms of forward fit or new helicopter build versus the retrofit market? Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: Well, unfortunately, I can't break that out, but I can tell you that it is overwhelmingly the – it's for either new helicopters or retrofitted kind of reset helicopters that come in and are basically rebuilt by the government. So that is really overwhelmingly the business. The repair, overhaul, commercial markets are, as far as we are concerned, all opportunities as opposed to risk.

Okay. That's great. Helpful. And just finally, Larry, I guess your leverage now still relatively low, absolutely on an absolute level higher or at one of the highest levels it's been for the company at just 2.3, 2.4 times the EBITDA. Can you just remind me again what your comfort level is? Or how will you think about capacity for M&A as we go through the rest of the year? Laurans A. Mendelson - Chairman & Chief Executive Officer: Sure. Firstly, our debt-to-EBITDA is under 2 times. It's probably closer to 1.75 times. And if you project out the cash flow, we've said we estimate cash flow of about $220 million. So that – I think we've said it's $565 million. So it'll be down closer to 1 turn. So our leverage is very low. To answer – and I've been asked this many times – how high would we bring the leverage. Firstly, we try to have control of growth and we focus at 20%. And I can tell you, in order to do 20% bottom-line, we don't have to take the leverage way up to 5 times, 6 times, 7 times. So we can accomplish that, probably, at 2 to 3 turns. But if we had an opportunity to make a sensational acquisition that would create cash flow and growth and so forth and so on, I'd feel comfortable at 6 times or 7 times. However, I would want to make sure that it's not the absolute number that scares me, it's how quickly the 6 times or 7 times turns back to 2 times to 3 times. So it would all depend upon that acquisition and that's really the way we look. We don't like high leverage. Companies get in trouble with leverage. We've always been a low-leverage company and for 20 years – 25 years, we have been able to grow at a compounded rate of about 20% bottom-line and spot price. So we see no reason why in the next three years to five years we can't continue to do that with low leverage. I don't know, does that answer your question?

Yeah. No, that's helpful. Thank you very much. Thank you. Laurans A. Mendelson - Chairman & Chief Executive Officer: Okay.

Your next question comes from the line of Sheila Kahyaoglu.

Hi. Thank you, guys, and great quarter. Laurans A. Mendelson - Chairman & Chief Executive Officer: Thank you, Sheila.

Very nice. I guess, I'll start with big picture first. In terms of just the guidance increase, you've put up 14% sales growth in the first quarter and 20% net income growth, but your guidance is significantly lower than that. And the D&A doesn't quite make up for it. So I was just wondering is there anything that slows down organically or is it just conservatism regarding the Robertson acquisition? Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: I'm not following the question all that well. I think...

I just meant that the organic growth is going to continue on its moderate growth trend and then you have Robertson coming in. But the net income numbers this quarter, the growth was up 20%, but your guidance is only for 10% to 13% in growth. Carlos L. Macau - Chief Financial Officer, Treasurer & Executive VP: Yeah. Sheila, this is Carlos. As we mentioned in the press release and Larry spoke of, at the beginning of the call, the 20% growth is real comparable Q1 2015 to Q1 2016 growth. That includes about $0.03 worth of broker fees, if you would, relative to the Robertson acquisition. Our guidance is based on GAAP guidance, okay? So we've given you guidance of revenue growth between 14% to 16% on the top-line, and we've given you bottom-line growth of 10% to 13%. The reason that bottom-line growth is a little wider is because we are in the process of assimilating Robertson. We're in the process of closing down purchase accounting and there is a lot of judgments on things yet to be made. And so we'll narrow that range down as we get into Q2 when we have better visibility into how we finalize that out. But as Victor mentioned earlier, we're five to six weeks into this deal. And we really wanted to be fair to focus on our projections as to why we did it. Laurans A. Mendelson - Chairman & Chief Executive Officer: Sheila, if you'll go back historically, most years, we have guided – as we came out of the box, we guide more conservatively. We use the figures that come from down below from the business operations and they tend to be conservative. They don't want to over-promise and under-produce. And we use those figures to give guidance also. Historically, we have raised guidance as we've gone through the year, and visibility becomes clear. And I think, in essence, that's what Carlos is saying, and we would rather be err on the side of conservatism, and promise a little less and, hopefully, we can deliver more. But as the numbers come in, we'll adjust the guidance as we get better visibility. I mean, I'm hopeful. You know we set a target of 20%, all right? So that's our goal. And we'll see if how close we come to that.

Understood. And then, I guess, just one for Eric. In terms of the slowdown in the business in the repair and overhaul, was that all South America or that was just across the board? I know, you discussed it in the beginning a bit. And then, on the 6% organic growth that you did see in the other business lines, could you maybe elaborate on what products or platforms or geographic regions that were contributing to that? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Sure, Sheila. With regard to the repair services, the South America, I would say, was the most notable of the ones that were down a little bit. And again, when we say down, I mean this is not, if you will, material or a big number down. I mean, it was just what we think was a little bit of weakness down there in the economy and it sort of makes sense and with the strength in the U.S. dollar. So with regard to the growth in the other areas, it was really very broad-based, we're doing very well in the parts business, in the distribution business, in specialty products, and I would say it was very much across the board in all of those businesses. And I fully expect the repair side to return to its historical growth numbers hopefully in the near future.

Sure. Thank you very much. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Thank you. Carlos L. Macau - Chief Financial Officer, Treasurer & Executive VP: Thank you.

Your next question comes from the line of Robert Spingarn. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Hi, everybody. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning, Robert. Carlos L. Macau - Chief Financial Officer, Treasurer & Executive VP: Good morning. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): So forgive me if I missed something. I jumped off for a moment. But Larry, your guidance increase on the top-line, is that fully just reflective of Robertson? Are there any changes elsewhere? Laurans A. Mendelson - Chairman & Chief Executive Officer: I'll let Carlos respond to that, Rob. Carlos L. Macau - Chief Financial Officer, Treasurer & Executive VP: Yeah, Rob. So on the organic side, we really didn't have much change in views between the two segments. It seemed about right. But we do have acquired businesses from last year and this year that are contributing to that which are performing very well. So that was primarily the contributing factors to our guidance increases. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): So the organic is as it was? Carlos L. Macau - Chief Financial Officer, Treasurer & Executive VP: Yeah. We're still shooting about mid-single digits in those segments on the organic side from what we disclosed in December. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Okay. And so, now just to follow on that with Eric, have you seen anything based on the first quarter, which might change your expectations for the rest of the year? In other words, it sounds like the repair and overhaul pressure is timing, and maybe that comes back – or is it – or are you offsetting it elsewhere with some strength? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Well, good morning, Rob. We think that it is timing and then it will come back. We have not lost market share. We increased market share as a matter of fact. So between either, A, it coming back, and, of course, we don't know exactly when it's going to come back. And B, the fact that we've got, if you will, lot of proposals and new products out there, we think we're going to make it up one way or the other. We could get lucky, if you will, and both happen. But we're cautiously optimistic that at least one of them will happen. So we feel pretty good about it. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Okay. And then just delving a little bit deeper into what's going on in the part side at FSG, it sounds like you've got the organic growth there. Is that primarily – I think you said earlier that's new product-driven. Is there any sense of how same products are comparing on a unit basis? I'm trying to get an idea of how airlines are behaving and over haulers with regard to essentially the same-store sales. In other words, is the activity level consistent today with what you saw a year ago? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: I would say we're doing quite well in terms of developing new products. For us, it's a fairly complex equation. We've got increased penetration on existing products. And then, in addition, existing products to existing customers. Then, of course, we occasionally get a new customer. We pretty much deal with everybody in the world. So unless there is, if you will, a new airline coming in or a new firm in the overhaul and repair business, there tends not to be a lot of new customer business in that area. And then you have the volume piece of the equation depending on what the market is doing, and then all of that is offset by retirement. So it's a fairly complex analysis and we perform it and we look at exactly how we're doing. But I'd say that I think we're doing very well in discussions with our – the heads of our various sales regions over the last couple of weeks. I can see that they have a tremendous amount of enthusiasm on new products, a greater acceptance in many areas. So they feel very good about where the business is headed. And so if I can give you a little bit of color that way, our organic growth is typically not price-related. We do get a little bit of pricing but we are not a significant beneficiary of higher prices. We tend to be extremely customer-friendly and we lock and get additional products since our customers feel that we are not gouging them and we're on the same side of the table with these guys. In particular, if you look at some of the newer fleets, the airlines are starting to look at the costs of maintaining those products and they, as currently quoted, are prohibited. And getting back also into the question about fuel, one of the big drivers, obviously the justification for buying new aircraft is the fuel savings, the dollar cost in the fuel savings, and of course that's gone away. But I think a lot of the airlines also under estimated the cost of maintaining this new equipment because it is going to be, I think, a shock to a lot of people. So I think that's why HEICO is in a very, very preferred position in all of our businesses whether it's parts, repair, distribution because the customers know that we're very price friendly. We don't jack our price on them. We look to help them out and that's the reason for our success. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Well, Eric, I would certainly thank you for all that color. I would certainly agree you guys have done very well here and the price opportunity or the value proposition I think is resonating with airlines here and that – so I think what you're saying to me is you're introducing new products, you're getting some additional penetration and that is driving volumes. Any sense though on an aircraft-by-aircraft basis, if activity is lower because the airlines are becoming a little bit more disciplined with the frequency with which they replace parts? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: I would think that they are more disciplined in terms of the amount of inventory that they have and making sure that when they retire a fleet, that they don't get stuck with inventory – unused inventory. In terms of delaying, in general, I mean, that's sort of a short-term phenomenon. Of course, you can do that when you're retiring a fleet and we build that into our projections. But I don't really see them significantly delaying maintenance. In terms of used-serviceable, that is an issue for, basically, repairable parts which most of our businesses are not repairable parts. Our PMA business is more expendable parts which would be less susceptible. We do have some products that we offer that would be impacted by used-serviceable, but a vast majority of our business would not impacted by used-serviceable. However, on the repair side, there can be a delay caused by using some used-serviceable equipment and that can impact it a little bit more. But again, we don't think that that's a, if you will, a long-term phenomenon. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Okay. But it's not something like a particular SKU requires replacement between 1,000 hours and 1,200 hours and now they're just waiting to the 1,200? It's not a situation like that. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: No. I personally am not aware of that. I can ask that question. I think the airlines have been, for certainly the last decade, very disciplined. And if they can get the 1,200 hours in your example, they would get the 1,200 hours. I don't think that that's a new thing right now. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Okay. Great. Thank you for the color. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Thank you. Operator Your next question comes from the line of Michael Ciarmoli.

Hey. Good morning, guys. Thanks for taking the question. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning.

I just have one and I'm – I wish – I wanted to go back to Robertson, I guess. I mean, you guys sound – it looks like a great deal. It seems like you're pretty optimistic on the helicopters. I'm just wondering if you can reconcile, especially on the new-build side, I mean, I think the budget that was just presented was literally characterized as a bloodbath in terms of army aircraft procurement. It looks like Black Hawk volumes are going to be down significantly, Apache is down significantly, Chinook. I mean, have you guys thought about the current procurement environment going forward to reconcile that with how Robertson has performed? Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: Yeah. I mean, the budget is not set yet and it gets – this is Victor by the way – it's going to move around before it's set. We are aware of that, what the proposal is for the coming year. At Robertson, they have a fair amount of foreign military sales, foreign military business, as well as growth on some other retrofit and repair work – not repair work, excuse me, but retrofit and resets and so on. So right now, we'll see when the budget sets out but our expectations we think are still appropriate.

Okay. And then, can – are you guys the sole source or is Robertson on the JLTV and can that be a significant needle moving program for the Robertson revenue streams going forward? Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: We're very careful to say what we're working on, but I will say that historically they have not been on JLTV, and that is not something that we've baked into our projections going forward.

Okay. Okay. So I'm looking on their website, JLTV fuel system, so we should just kind of take that with a grain of salt for now. Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: I think they had – the only real heavy groundwork that they had done historically had been on the Bradley and that was a program that was completed decently before our acquisition. So we have not baked ground equipment into the projections. But I won't say what they're working on. You understand the difference there. We don't have it in our projections going forward, but I can't say what they're working on for competitive reasons.

Got it. Perfect. All right. That's all I had, guys. Thanks. Victor Hesq Mendelson - Co-President and President of Electronic Technologies Group & Director: Thank you. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Thank you.

Your next question comes from the line of Eduardo Sinclair (59:34).

Hi. Good morning. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning.

How do you see the lessor party saving nowadays regarding PMA parts? And how do you think the PMA parts will be impacted if the aircraft leasing market continues evolving? Laurans A. Mendelson - Chairman & Chief Executive Officer: Eric, do you want to respond to that? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Yes. Yes. Good morning, Eduardo (59:56).

Good morning. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: There are a number of (01:00:02) permit the use of PMA parts on their aircraft, and a number of airlines worldwide will not sign leasing contracts without having the opportunity to do that. And of course, the airlines that have larger fleets are the ones who are typically able to get that, if you will, restriction lifted. The smaller airlines, it's been an issue of education, and frankly, market power of the lessors. But I think there are a number of things going on in the international airline community. In particular, IATA has been very vocal in this area, not telling airlines that they should or should not use PMA material, but instead wanting to maintain the option for them. Because as you know, the airline industry is typically extremely competitive and they have a number of, if you will, monopolies to priors, and it's not a good thing when they have a particular manufacturer who can dictate prices. So we've been successful working with a number of lessors. As a matter of fact, if any customers are on this call and want to know the names of lessors, our salespeople would be more than happy to give them the names of those people who are cooperative in this area. So we think that there is a lot of progress that's been made. There is a tremendous amount of progress that remains to be made in this area. And for the short-term, we have not baked that into our projections. I don't know if that answers your question.

Yes. Thank you very much. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: You're welcome. Thank you.

Thank you.

Your next question comes from the line of Steve Levenson. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Thanks. Good morning, everybody. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning, Steve. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Two small items. Some of the things that we track include aircrafts that we believe are going to be coming in for service. And it looks like there is going to be an increasing number of Boeing 777s. I don't think that's your biggest program, but could you give us an idea sort of where that platform ranks in importance for HEICO? Laurans A. Mendelson - Chairman & Chief Executive Officer: Eric, do you want to (01:02:26)? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Sure. I'd be happy to answer that. Good morning, Steve. The Boeing 777 is an important platform for us. We do have a number of products on it. Again, we don't like to get into too much specifics on exactly which products. The aircraft has been in service roughly 20 years, so many of those aircrafts are entering their sweet spot of needing overhaul. We're finding aircraft that are having other wear conditions, which have not been previously exposed or detected. So we're finding opportunity there. One of the interesting things that has come out of the Boeing 777 is the, in particular, the Rolls-Royce powered aircraft since there is one – basically one supplier of material and one supplier of overhaul choices. The Rolls-Royce powered aircraft that come under tremendous financial cost pricing problems because people don't want them because the cost of maintaining the engine is so high. So I think this is causing a sort of an awakening in the airline community realizing that if you buy an aircraft with an engine, which has a very limited service options, that's not going to be good for the future maintenance cost to the aircraft and you're going to be in trouble. And actually the thought of having more, if you will, OEM licensed service options, which can only use OEM material and not, if you will, PMA or DER, that doesn't help either because the wrench turning is maybe 20% of the cost of the engine overhaul and material is 80%. So yes, you can get competition. And if somebody in theory is more efficiency on wrench turning, say, they're 10% more efficiency, you can save 10% to 20% or 2%. Well, that's nowhere near what you can save if there were a competitive alternative material market. So I think the airlines are waking up to this fact. IATA see this as well as the regional airline groups. And so we hope that this will ultimately have a good impact for our business. That's going to be more of a long-term impact, but we think it will be good. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Got it. That's very helpful. Thank you. The other question is just about the reasoning for Robertson to go into ETG. Is that more of the nature of the products or the customers? Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: More the customers really. Historically, most of the defense business, or almost all of it had been in the ETG. So (01:05:31) there. Stephen E. Levenson - Stifel, Nicolaus & Co., Inc.: Got it. Thanks very much. Eric A. Mendelson - Co-President and President of HEICO's Flight Support Group & Director: Thank you.

Your next question comes from the line of George Godfrey. Laurans A. Mendelson - Chairman & Chief Executive Officer: Good morning, George. George J. Godfrey - C.L. King & Associates, Inc.: Good morning. Thank you for taking the question. I wanted to ask about Robertson and, specifically, M&A activity. You talked so glowingly about the acquisition, and it appears to early days being off to a nice start and really positive for the company. It is the biggest acquisition you've done to-date. Are there more opportunities, not necessary fuel systems for helicopters but more Robertson-like acquisitions in size, nature, financial metrics and the positive view that the customers have on that product. Are there similar ones and like that in your M&A pipeline? Thank you. Laurans A. Mendelson - Chairman & Chief Executive Officer: George, I would say, Robertson – in terms of product, the answer would be no, because Robertson makes a very unique sole source product. So that's not – but from the point of view of acquisition pipeline, there are a number of deals that we have which are larger than deals we have done in the past. The problem with talking about acquisition – and we have a lot of deals in the pipeline and we're doing a lot of due diligence. But, as I've mentioned to shareholders in the past, the – to comment too much detail on acquisition, you never know what you're going to find when you start to look under the stones and you would start to kick the tires and do due diligence. And sometimes, the – what appear on the surface to be great acquisition opportunities, is allowed (01:07:16) because of the due diligence doesn't hold up. I don't have to tell you that investment bankers and sellers like to puff their earnings and future and everything else. And when we go in there, very often, we find that truthfully, what they have told us is not the case. They might've told us that the earnings would be so much and their ex-minus what they told us. And so all those different things enter into it. But yes, we have a good pipeline, we're very active and of course, we're extremely careful in what we do. But I think there is very good opportunity out there. We now, certainly, have the financial capability to buy anything that we may want to buy. We have no constraints and as a matter of fact, Robertson, the deal was eased for us because we have the credit line. We don't have to go to banks and ask banks to approve a deal. So we can sign a contract with a definite buy. It's not subject to getting financing and the uncertainties which a lot of other companies, including private equity would have. So I would say, overall, our acquisition pipeline is fine. George J. Godfrey - C.L. King & Associates, Inc.: Great. Thank you very much. Laurans A. Mendelson - Chairman & Chief Executive Officer: Thank you. Carlos L. Macau - Chief Financial Officer, Treasurer & Executive VP: Thanks, George.

Your next question comes from the line of Herbert Wertheim.

Larry, thank you so much for what you've done for us and our family. We're, as you know, your largest shareholders for almost 25 years now. Congratulations to the team. You have never really disappointed us. You just keep exceeding our expectations. And, again, thank you very much for everything that you've done for us and for our community. Laurans A. Mendelson - Chairman & Chief Executive Officer: Herb, thank you very much. You have been an extremely loyal and supportive shareholder. And thank goodness, you've been well-rewarded. I'd like to take this opportunity to make a comment to remind people on the call that perhaps is the single thing that I am most proud of and I think Eric and Victor, that early on the company sold a large block of stock to the 401(k) plan. And over the years, the stock has been allocated to employees' accounts. As you know, they can defer up to 6% in their compensation and then put it in the 401(k) and they select from a menu of mutual funds and for the money that they contribute. The money that we contribute is contributed in HEICO stock. And the result has been that the employees of HEICO, and I'm talking about people who are not big wage earners, I'm talking about people who have made $25,000 to $40,000, some of these people have over $1.5 million in their 401(k), and the – some of the people have already retired. And it's really – I think, it makes us extremely happy and proud to know that people who have worked hard at HEICO and who have dedicated themselves, done a good job and so forth besides getting compensation. When it comes to their retirement, they don't have to look at the government and ask the handouts and all kinds of other stuff, but HEICO has taken care of them. And, Herb, you as a shareholder and myself and my family, we have really contributed because part of our profits went to the 401(k). But we have taken care of these people, and I've had many people come up to me after they retired and say, thank you very much, we never could have done this on social security. So Herb, just I thank you very much for your comments and point out that there are also a lot of very, very happy, satisfied employees at HEICO. Thanks, again.

You're more than welcome, Larry. Thanks again for what you do not only for us as shareholders, but what you do for the community as a whole. Laurans A. Mendelson - Chairman & Chief Executive Officer: Thank you, Herb.

There are no further audio questions at this time. Laurans A. Mendelson - Chairman & Chief Executive Officer: Well, I want to wind this up by thanking everybody again for their interest in HEICO. We are available if you have questions. Give us a call. You know where to reach us. And otherwise, we will be looking forward to speaking to you with the Q2 earnings report at some time in about three months. So have a wonderful weekend to everyone. This is the end of the call.

This concludes today's teleconference. You may now disconnect.