Good morning. My name is Nian, and I will be your conference operator today. At this time, I would like to welcome everyone to the HEICO Corporation's Fiscal 2017 Fourth Quarter and Full Year 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. [Operator Instructions] Certain statements in today's 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 low demand for commercial air travel or air fleet changes, or airline purchasing decisions, which could cause lower demand for our goods and services; products specification costs and requirements, which would cause an increase in 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 or 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 costs and delay sales; our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk; interest; foreign currency exchange and income tax rate; economic conditions within the 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 or reading 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. I would now like to turn the call over to Mr. Laurans Mendelson, HEICO's Chairman and Chief Executive Officer. Please go ahead.

Thank you very much, and good morning to everyone on the call. We thank you for joining us and we welcome you to HEICO's fourth quarter and full fiscal 2017 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 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 operating results in detail, I would like to take a few minutes to summarize the highlights of our record fourth quarter and full fiscal year results. Consolidated fourth quarter fiscal 2017 net sales of $421.2 million represents operating or an operating income of $89.4 million; net income $53.7 million or represent record results driven principally by continued organic growth. The exemplary execution by our subsidiaries and the acquisition of profitable well managed businesses within both of our operating segments. Our consolidated fiscal year 2017 net sales of $1.5248 billion operating income of $306.7 million and net income of $186 million represent record results driven principally by the impact of our fiscal 2017 and 2016 successful acquisitions as well as organic growth within both operating segments. Consolidated net income and operating income in the fourth quarter of fiscal 2017 are up 21% and 18% respectively on a 16% increase in net sales. Consolidated operating margin improved to 21.2% in the fourth quarter of fiscal 2017 and that was up from 20.9% in the fourth quarter of fiscal 2016. Consolidated net income and operating income in fiscal year 2017 are up 19% and 16% respectively on a 11% increase in net sales. Our consolidated operating margin improved to 20.1% in fiscal 2017 and that's up from 19.3 in fiscal 2016.…

Thank you very much. First of all I would like to start out my comments by thanking all of the hard working and talented team members within the Flight Support Group, with me spend a fair amount of time speaking with investors throughout the year and I think that everybody recognizes that we operate in extremely competitive market. And our hard working and talented team members are the reason for our success. They are the ones who figure out how to succeed in these markets, how to make our customers happy and I could not be happier to work with such a terrific group of human being. The Flight Support Group's net sales increased 12% to $256.9 million in the fourth quarter of fiscal 2017 up from $228.5 million in the fourth quarter of fiscal 2016. The increase in fourth quarter net sales reflects aggregate organic growth of 6% in our aftermarket replacement parts and repair and overhaul parts and services product lines and the impact of our recent profitable acquisitions, partially offset by lower demand within our specialty products - product line for certain aerospace and defense products. Overall organic growth for the Flight Support Group was 2% in the fourth quarter of fiscal 2017. The Flight Support Group's net sales increased 10% to a record $967.5 million in fiscal year 2017 up from $875.9 million in fiscal year 2016. The increase in fiscal year 2017 net sales reflects aggregate organic growth of 9% in our aftermarket replacement parts and repair and overhaul parts and services product lines and the impact of our recent profitable acquisition partially offset by lower demand within our specialty products product line for certain aerospace, industrial and defense products. Overall organic growth for the Flight Support Group was 5% for fiscal 2017. The strong…

Thank you, Eric. As Eric did before he began his remarks, I would like to thank all of HEICO's team members and call out the all the team members in the Electronic Technologies Group for their continuing excellent work, devotion to our company and devotion to our customers and to each other. It is a remarkable group of people who endeavor on our behalf and our shareholders behalf in good times and bad. And while I'm proud of the team for this particular excellent quarter, I'm proud of them at all times even when the quarters and the results are not as good. So, thank you all for your hard work. The Electronic Technologies Group's net sales increased 22% to a record $169.1 million in the fourth quarter of fiscal 2017 up from a $138.3 million in the fourth quarter of fiscal 2016. The increase in the fourth quarter net sales resulted from strong organic growth of 14% principally from increased demand for our defense, space and aerospace products as well as the contribution from our profitable fiscal 2017 acquisition. The Electronic Technologies Group's net sales increased 12% to a record $574.3 million in fiscal 2017 up from $511.3 million in fiscal 2016. The increase in fiscal 2017 net sales resulted from organic growth of 7% principally from increased demand for our space, aerospace and other electronics products as well as the contribution from our profitable fiscal 2017 and 2016 acquisitions. The Electronic Technologies Group's operating income increased 39% to a record $51 million in the fourth quarter of fiscal 2017 up from $36.8 million in the fourth quarter of fiscal 2016. The Electronic Technologies Group's operating income increased 25% to a record $157.5 million in fiscal 2017 up from a $126 million in fiscal 2016. The increase in the fourth quarter and fiscal year of 2017 principally resulted from the previously mentioned net sales growth and improved gross profit margin mainly from higher net sales and a favorable product mix from certain of our aerospace and defense products and net sales growth on relatively consistent period-over-period SG&A expenses. Also fiscal 2017 reflects a decrease in acquisition cost associated with the prior acquisition. The Electronic Technologies Group's operating margin improved to 30.2% in the fourth quarter of fiscal 2017 up from 26.6% in the fourth quarter of fiscal 2016. The Electronic Technologies Group's operating margin improved to 27.4% in fiscal 2017 up from 24.7% in fiscal 2016. The increase in the fourth quarter and fiscal 2017 came mostly from improved gross profit margin associated with the favorable product mix and SG&A efficiencies. With respect to fiscal 2018, we are estimating approximately 12% net sales growth over the prior year and anticipate the full year Electronic Technologies Group's operating income to approximate 27%. Further we estimate that approximately half of our fiscal 2018 growth in net sales would be generated organically. The estimates exclude additional acquired businesses if any. I turn the call back over to Larry Mendelson.

Thank you, Victor. Moving on to diluted earnings per share, consolidated net income per diluted share increased 19% to $0.62 in the fourth quarter of fiscal 2017 and that was up from $0.52 in the fourth quarter of fiscal 2016 and it increased 17% to $2.14 in the fiscal year 2017 and that was up from $1.83 in fiscal 2016. All fiscal 2017 diluted EPS amounts have been adjusted for our 5 for 4 stock split distributed in April but not for the split that will be coming up in January. Depreciation and amortization expense was $17.9 million in the fourth quarter of fiscal 2017 that was up from $15.7 million in the fourth quarter of 2016 and totaled $64.8 million in fiscal year 2017 and that was up from $60.3 million in the fiscal year 2016. The increase in fourth quarter fiscal 2017 principally reflects incremental impact of higher amortization expenses of intangible assets from our fiscal 2017 acquisitions. The increase in fiscal 2017 principally reflects incremental impact, higher amortization expense of intangible assets and depreciation expense attributable to fiscal 2017 and 2016 acquisitions as well as higher depreciation expense associated with continued investments in certain existing international business units to support their profitable growth. Research and development expense increased 4% to $12.6 million in the fourth quarter of fiscal 2017 up from $12.1 in the fourth quarter of fiscal 2016 and it increased 4% to $46.5 million in fiscal 2017 and that was up from $44.7 million in fiscal 2016. Significant ongoing new product development efforts are continuing at flight support and ETG and we continue to invest approximately 3% possibly 4% of each sales dollar in new product development. As I mentioned many times before this is a key driver of HEICO's success, our ability to reinvest,…

Thank you. [Operator Instructions] Your first question comes from the line of Rob Spingarn with Credit Suisse.

Good morning.

Good morning Rob.

Well, outstanding quarter. I'll start with that. You're impressive on a lot of accounts and you haven't gone through most of it, few things, and if I missed this forgive me, but you provided a lot of detail. First of all Larry on the CapEx, the doubling in CapEx to next year if you could dig into that a little bit?

Carlos -- going to give to you Carlos.

How are you doing Rob, this is Carlos.

Hi, good morning.

Just a couple of things, one, we spent about $26 million last year which we significantly under spend our budget, part of that was some hold back by some of our subsidiaries. Frankly looking forward and taking advantages some of the tax benefits that are being credit tax reform so that's part and parcel of it. Secondarily, we have some growth opportunities that we are looking into for our existing businesses, so when you put that all together we do expect higher spend this coming year, however as you know we typically go with our wish list that our subsidiaries provide to us, generally and historically speaking that has been higher than what we turn up at the end of the year, but as we are sitting here today, we felt best to put the number out there as our subsidies like to see it and then we will update that guidance [indiscernible] through the year and our visibility increases into what we are likely going to spend.

Okay. All right. Well, thank you for that. On another note, on the acquisition side, you had somewhat linear trend upward over the last several years specifically fiscal 2015 through 2017, not quite doubling each year. But, do you -- and this is a question for anybody but is there a way we should think about your appetite for acquisitions in 2018 and I know you still look at them and you still positive on that, but is there anyway for us to quantify some kind of target amount either our percentage growth in sales or just a size of deployed capital?

Well, Rob from my perspective, I can't model in acquisitions. We've had traditionally done two, three acquisitions a year. I can tell you that Larry will ask me to go out and work with the bankers and get a big line of credit, so we had plenty of firepower to acquire what we wanted to. And I can tell you that our acquisition team is quite busy. But, as far as modeling into your projections, I'm going to leave that up to you, I do not want to provide any type of guess on that topic.

Would it be unreasonable for me to try to size or to ask you if you are looking at things that are larger than you have done historically?

I think Rob, we have looked both at big, medium and small acquisitions, we are very opportunistic. We are not going to walk away from a big deal, we are not going to go on a big deal, we are a small deal, we are going to look at the stuff that we have presented within the best opportunity for the company and our shareholders, what we are going to go after. Now, to your point and I know where you are heading with this, our last few deals have been rather large, Robertson and AA, we have had a few bolt-ons, A to Cs, we have gravitated to some bigger deals if you would, I think that's a function of the fact that we are a much larger company now. And as you can imagine to move the needle we have to think a little bigger which is fine. But, I would not discount the importance to HEICO's growth strategy of our bolt-on deals or traditionally smaller transactions that we are very good at doing.

Okay. Just a couple of quick ones for Eric and Victor on the margins. Eric, I know you had some pressure in specialty products, the incremental, the organic sales growth was a little bit lower than it has been, I think you are saying that's going to rebound this coming year. The incremental margin was over last year's fourth quarter was not very high, can you speak to it, is it simply volume and mix, is there anything else going on there?

No. It is just a push out for the right of certain projects, certain orders and actually we are in receipt of those orders now. So, we are very optimistic for 2018, I think we've sort of -- if you owe a one-time deferral of certain things, we did not lose any business, we maintained their business, but it's just -- simply a provide to the right and in that operation, it's a manufacturing intensive operation with a certain amount of fixed cost. So that hurt us in the fourth quarter.

So, Eric just to put a finer pencil on this, the numbers I have are historically you are in double-digit incremental margins every quarter, the fourth quarter was mid-single digit, so should we be looking for double digit incrementals quarterly in 2018?

When you are saying double digit incremental margins, I'm not --

So, your incremental margin again, this is relying on my math to see if it's correct, probably averaged 25% in each quarter, so this is a margin on your incremental sales, in the first three quarters of this year, they were healthy, they were in the double digits probably averaging about 25%, in this last quarter was 6.5%.

We don't actually look at it on an incremental basis; I understand what you are saying. But, we just don't look at it that way. But, again, if you look at last year's fourth quarter was really had a very, very high margins and was somewhat of an outlier. If you look at it for the full year, the operating margin is down just 20 basis points. And I think that is within the normal fluctuation. Remember also we had some acquisitions in there and increased intangible, amortization associated with those acquisition, if you were to add that back we are right there. Nothing has changed fundamentally with the business, so I can't comment on the incremental margin impact, I can tell you nothing has changed, we are in receive of the orders and we feel very good about the business going forward.

Rather I will say this; I won't want people to lose sight of the fact that as Eric mentioned, we do have some push outs right in specialty products. But, our aftermarket business was very strong, we pushed 9% organic growth through the pipe in FSG. And that's pure aftermarket parts business and we are very proud of that and hopefully folks don't lose sight of that fact.

No. Carlos, you are talking about the year or the quarter there?

I'm talking about the year. The quarter was 6%, which also made us very strong.

No, no. It's excellent. The quarter was very strong across the board. I was just trying to home in on the fact, it looks like this particular quarter was an anomaly and if I heard all correctly that's because certain things moved to the right.

Correct.

Okay. Thank you, all.

Thank you.

Your next question comes from the line of Ken Herbert with Canaccord.

Hi, good morning.

Good morning, Ken.

I first just wanted to start Victor, obviously very nice organic growth in the quarter within the ETG segment, can you just provide any more color on any specific either products or opportunities that you saw in the quarter and how much of it may be was one-time or push out from prior quarters in fiscal 2017 or just a little more color on the 2014, around the very strong organic growth in the quarter?

Sure. I will be happy to do that. It was broadly based. It really was a case of firing in all cylinders in the quarter for our businesses. I mean there is always a weak spot here and there. But, I would say there were a very few of them. So, unfortunately I can't attribute it to any particular company. It wasn't a case of pull ins, so much. I mean our company's are always very aggressive about shipping things as quickly as possible. So I think that's kind of steady state for us. They tend to tell us they are going to ship later than they do and they tend to do things faster and we are happy with that. They are conservative. So, at this point, it was just a good quarter across the board. I would expect as the year wears on, we are not going to have a linear progression through the fiscal year. And that is, -- and can we ever do in the ETG. So, I just want you to expect that or this rate or this growth rate in every quarter in this way that it came and typically it builds in the year as you probably noticed typically the end of the year with a stronger than the beginning of the year. So, usually I look for it, not so much in the first quarter as much as I do later on. But, we will see where we come in.

No. And if you look at 2017 obviously, the first quarter comparison is certainly more challenging than the second and third quarter, is it fair to say that we should maybe see lower growth in the first quarter relative to the full year guide, just considering the comparison and maybe some stuff was pulled forward a little bit into the fourth quarter as we think about the cadence again to your point there for ETG sales across the full year?

Yes. I don't think it's a good question. I don't think we had any meaningful pull from the first quarter into the fourth quarter, nothing outside of the usual noise level that we always see. And I don't even know what they call pulled from the first quarter so much as they give us a little bit of different expectation. We don't give quarterly guidance, but and at this point we are really just basically six weeks almost halfway through the quarter. So, I really don't know but I wouldn't be surprised if -- it feels later in the year in the first quarter is not as strong as future quarters, but honestly I don't know that that's going to be the case either. Our guys are very conservative when they give us projections. So, I tend to be conservative as well.

Just to further find a point on Ken, just to further find a point on that I think as a general matter we don't pull things forward for our numbers, we do however if the customer needs something and is done we will ship it and if that means it goes early and they needed we do it and that's really how we create a lot of customer goodwill and that's one of the things in the ETG that makes it such a sticky segment with our customers, because we are truly customer centric and friendly in that segment.

Yes, okay and now I appreciate that. Just switching over quickly Eric on the FSG segment, I think I can appreciate the lumpiness within the specialty products segment as you look at organic growth specifically within the replacement parts and the repair and overhaul parts of the business, you're obviously up against a 9% and it looks like the guidance implies maybe a little bit slower organic growth there in fiscal 2018 especially if you consider give or take sort of $20 million as a catch up for specialty products. Is there anything you would specifically highlight on the guide for the more legacy aftermarket parts of the business, are you seeing anything structurally change there or is there maybe just conservatism in the outlook, again you know obviously with the full year numbers for 2017 and the fourth quarter we're very impressive. But how should we think about the organic growth within specifically the repair and overhaul and of course the replacement and parts part of the business?

Ken it's a very good question. We were really very, very happy with the 9% organic growth in the aftermarket for the year, I think that's a heck of a number and really I'm very, very proud of the team in all areas of our aftermarket for hitting those numbers. Because, this was not a year where we had any special if you will one off where there was deferral in prior years and it was got boosted this year. This was really as a result of developing a lot of new products great customer penetration and working extremely hard with the customers. So, I just feel very good about it and our guidance for next year, I think is a little bit more conservative overall in that area. But, again we receive most of our orders in the month of shipment, so we really don't have visibility, it's very difficult for us to be able to project, I've done sales reviews with the, with our sales folks over the last number of weeks and I can tell you that they feel very good about where we're going our product offering, the customer acceptance. Frankly it's never been at this level before, so I just anticipate continued strength in this area and I anticipate all through a recovery in the specialty product area. Again, because it was not a loss to business, it was just simply a flip to the right and we all know that, certain types of businesses product can flip to the right to due to no fault of ours. But that's just sort of what happens and I think if you look back in the fourth quarter of last year we had a lot of very good things bunched up unexpected way and we didn't realize until, after the fact on how great that was. But, we as I said before we're in position of the orders, so we know we're going to ship them and we feel very good about it.

Great, thank you. And if I could just finally Carlos, can you just let me know what the amortization or the adjustment associated with AAT was in the fourth quarter and what the guidance implies for fiscal 2018 for the amortization of intangibles associated with that acquisition?

Well, what I can tell you Ken is that typically within electronic and we are waiting to see 10-K which should be out on Thursday. Typically the amortization runs about four margin points NOI, what I'm looking for in fiscal 2018 relative to ETG amortization is maybe around 5%. So it is going to add about a percent drag on the NOI margin for the ETG.

Okay, excellent. Thank you very much great quarter.

Thank you.

Your next question comes from the line of George Godfrey with CLK.

Thank you very much. I would also like to congratulations on a very nice quarter.

Thank you, George.

Two questions, first one is, if I look at the stock chart and it's a really nice stock chart and the evaluation where we were, four or five years ago trading at 12 to 14 times EBITDA and now, you're north of 20 and so my question is how agreeable are acquisition targets still today, so you are paying call it high-single digits EBITDA when they perhaps look at your stock trading at such a higher multiple of where you would like to buy the acquisition target?

George, this is Victor. The answer is the acquisitions we're buying are very different from HEICO in the aggregate. And multiples have moved up a bit and I think the multiples we pay are slightly higher than they were let's say 10 years ago or five years ago. Although I think we pay a very fair price for businesses. And so sellers, occasionally there is a seller who believes that their multiple should be comparable to ours and, those don't work. And that's always been the case, but generally speaking we pay a fair price and people who are looking for a good home for their businesses were not concerned with squeezing the last penny out of the sale price, but who are equally concerned with the legacy they are leaving behind with the business with their people, generally those people are not as sensitive for that time of argument and they are more concerned with what I call the social issues not that we can pay an unfair price, but I think we always pay a fair price and a reasonable price and we're not having difficulty, we didn't this year, we didn't have difficulty paying a fair price for our acquisitions. We have a number that we are looking, and I know I think there are number of reasonable sellers, but there are people probably in the private equity and in some other world's out there who will not be interested in the prices we offer and that's fine. We're not going to jeopardize our company, our balance sheet in order to do something transitory.

Got it understood. And I heard everything you said on the capital expenditure, so just from my own clarity if I look at, product segments within ETG electro-optical data, microwave, electrical and think about wide support at the engine or in the cockpit, the CapEx there isn't any one area product line or region of concentration that's the $50 million is looking to build up capacity in every single area, do I have that right?

I think its, George this is Carlos. Good morning. Its broad-based again we under spend last year by a fair amount and again, I think part and parcel that was planning as it relates to some of the full expensing that the legislators are taking about now. And so, and that means its equipment they could have weighted. It is broad-based it's not remained to any one particular segment. So, and again I would encourage you if you look back at our guidance, we came out of the box in December with our budget numbers there is no, there is no magic that we overlay on top of that, we truly are taking the information from our subs, they tend to have little higher wish list at the beginning of the year that we end up with the end of the year. So, let's see how it plays out, but no over allocation of that capital in any particular segment.

Understood, thank you very much, great quarter and happy holidays to you.

Thanks George, you too.

And your next question comes from the line of Dr. Herbert Wertheim with Green Power.

Good morning Larry and team.

Good morning, Herbert. How are you?

Fine, thank you. Well once again I think you've exceeded all of our expectations, although our expectations required high. You've had an amazing year, it's been extraordinary. As you know I've been with you from the time, we are the original shareholders for HEICO and you have allowed us to and our family to make hundreds of millions of dollars and contributions to many organizations. And we want to thank you and both the men's and boys' who grew with my daughters for their outstanding job you've done not only for us but for so many other investors in our community. So, keep up the good work. We look forward to the next year. Happy holidays.

Herbert, I want to thank you very much for your kind comments. Yes. You were there at the beginning and I've always said you have a brilliant mind as a scientist and as an investor. And you understood the value of long-term investing and we -- could not be happier having you as a shareholder, of course, as a happy shareholder and seeing that you have done so well. And then, have taken the proceeds of your largest and contributed to so many charitable institutions in and around South Florida. So, you have done good for a lot of people. And we congratulate you and wish you a very happy healthy wonderful New Year. And we will be in touch.

Thanks.

And Herbert, this is Eric, also I add my thanks and appreciation and just being grateful for your friendship and support over the years. And thank you so much for your kind comments.

Herbert, this is Victor. I have to let Eric -- I add to what Eric had said and also congratulate you on some good news that I saw in your family recently.

Well, thank you very much. And as you know I have known you -- since you were in high school and your dad since he was just doing deals. Certainly one of the smartest, hardest working families I have ever known, ever, ever, ever. Well, thank you Larry for all you do for all of our shareholders and what you have done for our community in Miami.

Thanks Herbert. Much appreciated.

Your next question comes from the line of Larry Solow with CJS Securities.

Good morning, guys.

Good morning, Larry.

Just a few follow-ups, most of my questions have been answered, and I echo all the positive commentary. Just a real quick on the -- Eric, if you could -- just a little more color you mentioned, 2017 was actually more of a development year, I want to start in, obviously, the 9% growth there to market was phenomenal and you would probably unlikely ever target that in your guidance number. But, any reason to believe, qualitatively as some of these products have incubated and maybe that 2018 could be as good of a year, doesn't seem like there is any change for the negative in the overall macro environment and for you specifically, it sounds like maybe more of that products will have contributions this year compared to last.

No. I would say nothing has changed in the overall macro environment other than I think we continue to improve our relationships, our reputation in the marketplace. And I think we are getting stronger. So, I think the -- if you will, the tide is rising. And again, it is very, very hard work. I don't want to under state the amount of effort that everybody needs to put forth in every single part of our business. This is not automatic. It's not the size of thing we are -- we can just close our eyes and come in tomorrow and anticipate the business will grow. It's extremely hard. So, I would say nothing has -- nothing really has changed in that area. The only thing I would add, of course, is that the first quarter of fiscal 2017 the organic growth was extremely strong. So, we are up against tougher comps for the first quarter. So, I think everybody should be mindful of that. But, no I feel, very, very strong about where we are going, what we are doing, no fundamental change in the business.

And historically you have targeted sort of launching, I think 300 to 500 new products a year in your product introductions, are we sort of in that area maybe at the higher end of that number, maybe a little above it?

I would say we are right in that area. Probably around the midpoint, I can tell you we had a very strong year of new product development this year. But, I would anticipate that to continue again. We target that number to be to really optimize what our customers can handle and we feel very good about it.

And then, just switching gears real quick on the ETG side, just on the acquisition of AeroAntenna, I believe it's all in there. Just to imagine, it looks like not getting into exact time, exact numbers there. It seems like its going to contribute, I don't know half of the $70 million gains, so maybe it's like -- is that, am I right there? And then, it looks like only $40 million, $50 million revenue number, or is that sort of what your guidance implies?

I don't quite understand. This is Victor. I don't quite understand the question.

You have the ETG growing 12% top line and obviously, it contributed to the AeroAntenna acquisition contributed a little bit in Q4, maybe you have a quarter's worth, but just simple math, if I just -- would say you grow that business $75 million-ish and if half of that is organic, I mean it's about $35 million from acquisitions and maybe you had a little bit of that in Q4 already. So, is my math somewhat, right? Or is that what the guidance implies?

Honestly Larry, we don't breakout the numbers on our subsidiaries, especially the acquisition. It's also a business that's growing, or at least at this point, it's growing. So, it's a little difficult to measure -- it depends how you look at it, what, just from the point of acquisition forward et cetera. So that the business is, it typically when you buy a business, it tends to be growing.

Right. No. I understand, so essentially -- did this acquisition was towards the end of the year, right? Was maybe half a quarter of contribution in fiscal 2017, so just simple math if grow that, if grow ETG 12%-ish, using round numbers, that somewhere in the $65 million to $75 million in revenue, right? And half of that from acquisition, the one big acquisition in there was ETG right? So, that's okay. We can talk offline. But, that sort of -- if I cut that in half that's $40 million, which would imply that's a revenue run rate maybe a little higher. Okay. That's all. Thanks.

Thank you, Larry. Thank you.

Your next question comes from the line of Michael Ciarmoli with SunTrust.

Hey, good morning, guys. Thanks for taking my question. Nice quarter. Just maybe some housekeeping cleaning up questions here. Eric, I appreciate the conservatism with the guidance. But, you've got the 5% organic growth in FSG, it sounds like the specialty orders were in receipt. I get that a lot of the aftermarket is sort of booked and shipped in the quarter. It seems like the 18.5% margins could have some potential upside. I mean, and again, I understand that sort of where the business has been tracking. But, just thinking about the potential positive implication from the specialty coming back, should we expect to see a little bit of upside on those margins in FSG next year?

Well, we -- I will let Carlos.

And Michael, this is Carlos. The thing that we got going on with that to see next year, we've got quite a bit of more amortization coming in from some of these acquisitions. It is done. And so, that's going to be a governor on our margin expansion in that segment. To your point, if specialty does come back strong, we anticipate that it will come back depending on the level of strength we get out of that. You are 100% right. We pitched a little bit of expansion as we see it now based upon our backlog, based upon the budgets that we have from our subsidiaries, the 18 to 18.5 range is kind of where things are falling out. Again, I will update that quarterly and we always hope to do better and to be what we have given you particularly earlier in the year. I think if you go back over, you've known as long enough that that we are out of the box, the guidance tends to be conservative. And there is a reason for that because we do like to take the numbers that our guys in the field are telling us and provide that to the street and then give you better information as year progresses. So, I wouldn't -- what you are thinking about your models and your projections, you can do what you want with that information I just gave you. But, as we are sitting here right now, those numbers from our standpoint are pretty good ones.

Got it. Can you quantify the amortization headwind from the recent post?

Can I quantify the amortization headwind from the recent post, yes. So, we are going to have these development points. Within the FSG, we are probably going to be looking at about 2% drag on the OI margin for amortization. That's all in on just the [As] [ph]. Okay.

Got it. Okay. Perfect. That's helpful. And then just Victor, the defense orders that had slipped, I think that you talked about last quarter, have those all been recovered?

Yes. I think they were very strong, not they think. They were very strong in the fourth quarter continuing it looks like in the first quarter. So, I would say so.

I know on the last quarter, you just talked about some contracts that were delayed and they were expected to start hitting in 4Q and into 2018. So, it sounds like that's all been picked up?

Yes, absolutely. And we are happy with them.

Okay. And then, just a last one Eric, you might not want to give specifics here, but, thinking about some of those new product developments, some of the 787s really starting to come in for c checks. If you are -- I guess, success rate in getting PMA replacement parts on a new platform like the 787, can you align with your expectations, is it above or kind of below expectations?

Again, we don't like to talk about specific platforms. But, I can tell you that in general with regard to the newer platforms, we are doing consistent with our expectations.

Okay, okay. Very good. Thanks a lot guys.

Thank you.

Your next question comes from the line of Colin Ducharme with Sterling Capital.

Hi. Good morning, everybody. Happy holidays. Great quarter. Most of my questions have been answered. But, just a quick one, a little bit longer term, just given the Electronic Technologies group, those are higher free cash flow margin segments that kind of structurally raising the consolidated HEICO margins over time, now that it's absolute profitability is approaching, the flight support level. And then, taking into account your recent 30% increase in credit capacity, just wondering in your view is the consolidated HEICO growth M&A fly wheel had an inflection point here and actually beginning to accelerate, I'm just specifically thinking of the increasing quantum of higher FCF margin, free cash flow margin that you are now going to have at your disposal? Thanks.

I truthfully, I'm not sure of the question -- this is Larry. I'm not sure of the question that you were asking. Can you define in a little --

Sure. Yes. Simply put just ETG as a higher margin and free cash flow segment becoming a larger part of the consolidated pie. So, I'm curious over time now in the next couple of years, is your margin and free cash flow growth actually beginning to accelerate on a consolidated basis?

The answer is absolutely yes. It is. It has been accelerating and we hope that it will continue to accelerate. I don't know if it is going to be more in the ETG or the flight support group. We have always said that we expect our businesses, we would like to keep diversification in 40:60, 60:40, 50:50, so we don't want either one of our segments to overwhelm the others. So, there is no intentional bias or managerial idea that we are going to build ETG because at the present time their margin -- it just happened. If the margins are bigger than flight support. There are reasons that flight support and this is very interesting, the shareholders on this call love high margin, so do I. On the other hand, if there are any industry players, their alliances or people on this call, they hate high margins. They want us to have 2% margins. They want us at low margins. So, in flight support, we are probably better off keeping a margin in the area of 18% to 20% because we don't get as much push back believe it or not from our customers. So, and there are many good businesses that come in close to 20%. So, in the flight support group, as I said 18% to 20% maybe a little above that. In the Electronic Technologies, it's a different business and we can get better margins and truthfully in some of the areas that we operate in Electronic Technologies, there are more arcane sciences, it's tougher, it's tough to compete with some of the results and products that we develop. Remember we in the flight -- in the Electronic Technologies, we own virtually all the IP. So, we don't build to suit there. In flight support, we own most of it. But, we do have distribution where we don't have on the intellectual property. And some of the other overhaul and repair facilities which are wonderful and profitable and generate cash and everything and bring us close to our clients, but they don't have the margin because there is a little bit more competition in that area. So --

And that's helpful color, Larry. I appreciate it. The genesis of this question is just in many roll-up story cases, law of large numbers begins to wave and it's just interesting that your platform seems to be strengthening and actually accelerating at this higher margin segment begin to be a larger portion of the overall business.

Out strategy has always been, I've said, HEICO have said this many times at presentations, I perceive HEICO not as an aerospace or Electronic Technologies company. HEICO is a very strong, well managed vehicle for generating cash flow. And as I look at HEICO, I see a snowball of cash. That's why we are in business. I don't want to be in the business of 7%. Some of you -- and you know, industrial companies, lots of them are operating at 7%, 9% and all of that. We don't -- our management, we are not focused on that. And we don't want to go there. So, we intentionally look for high margin. High margin is what permits us to constantly explore the company. We can take the funds and we don't -- our operating margin doesn't require us to invest huge amounts of money receivables in inventories. Other guys who have low margins, they have all their money stuck in, in non-productive assets and receivables and inventory. So, if anything sets HEICO apart from other companies, it's that basic philosophy of how to manage that money. And that's the only we know how to do it is shoot at big margins and grow. And that extra margin that you get is what permits us to reload and grow. And we are not going to cut it. We are not going to go out and buy 7% margin company. The other thing which I know is roll-out to these people in listening, the Mendelson family and our team members own a very large percentage of the company. And we are not interested in the top line growth and building the company at 7%, 8% operating margin because we are interested in the bottom line. The only thing that makes us a shareholders and you as our partners wealthy is the ability to have bottom line earnings per share and more important cash flow growth. So, our whole focus is cash flow. So, when we talk about growing the company, we are going to grow the company with margin -- strong margin we started 20% in acquisition and hopefully we get more than that. And that's really the philosophy and the -- if you want to know what makes it work that is really at the basic philosophy.

Absolutely and I appreciate that. And the fact, that you see the free cash flow profile accelerating over time as I do is great and [indiscernible]. Just as a quick follow-up for Eric, my final question is just on the PMA segment, can you characterize and talk about any change at all in the competitive dynamics from your largest number two competitor earned by a financial sponsor especially given certain financial pressures that firm has recently faced? Thank you.

Hi, Colin. We compete very vigorously in the market. Unfortunately we are not able to talk about competitors or customers by name for competitive reasons. But, I can tell you that HEICO was doing very well in the marketplace and I don't see any change in that regard. We're going to continue to build and grow, I think we're very much appreciated by our customers and we've got a lot of great things in the pipeline.

Your next question comes from the line of Josh Sullivan with Seaport Global.

Hi good morning, congratulations on a nice quarter and a great year here. I guess kind of a follow-up to that last question, I'm just curious to hear your thoughts maybe on the larger OEMs entering more aftermarket activity obviously don't want to name names. But are you seeing any of the aerospace OEMs operating more aggressively in any of your markets at this point?

We haven't really seen any change in that regard, our competitors have always been very aggressive including the OEMs, so I anticipate that will continue, I think that there is opportunity for HEICO to work with certain OEMs we already do work with a number of OEMs. So, I - it's what you are getting to is some of the talk about some of the large airframes starting to want to bring in-house some of their products that were formally designed outsized, I think that there is an opportunity for HEICO to for our strategy to be parallel with their strategy. I go and anticipate as airframes try to get into some of the markets that we're in for there to be and impact on our business. I think that this is more a matter of trying to reduce their own procurement cost and cash of more of the aftermarket at well I would say is the historical OE price point. So, HEICO will continue to offer the benefit that we offer to our customers. And I think that our opportunities to work with a number of OEMs and as I said earlier in response to your question, we are doing that and doing that very successfully.

Okay, good to hear. Thank you.

Thank you.

Your next question comes from the line of Sheila Kahyaoglu with Jefferies.

Hi guys, thank you for taking my question and congrats on a good year.

Thank you, Sheila.

Just going back to the very first question from Rob, how do you think about tax reform as it relates to the M&A environment and valuations in that space and can you just remind us of your net debt to EBITDA target that you where I want to go about with a particular deal?

Sheila, this is Carlos. The limitations as currently proposed by both the Senate and the Congress as their committee consents are significantly in excess of any interest expense to our EBIT or EBITDA. And so I don't foresee that aspect it's impairing us in anything that we do, the issue that I can be answered and I wish I could directly is that, I don't know how this is going to impact sellers. My sense is that if the individual tax rates do go down for Middle America, then that could be incentive for sellers, if the sellers are over healthy maybe if, maybe not so much, maybe just status quo. I will tell you though from HEICO's standpoint, anytime that we can get a reduction in the federal tax rate let's say which is at 35%. And they are going to drop as 21%, when you face it in because, of our fiscal year not being December, we maybe in the 24%, 23% range. That's a hell of a nice benefit to HEICO, I don't want to say a whole lot more than that, because as you know these things are changing every year, but from a macro perspective I'm very excited about the tax reform at a corporate level and as Larry mentioned earlier, as that develops we will provide additional detail on its impacts HEICO one that is known.

And Carlos just from the income, the target and leverage.

But Sheila, I did mention and I strongly believe one that they will pass this tax bill of course there is still speculation it's my opinion, but you will know in a few days if its passed. After that the impact on HEICO can be calculated by taking our taxable income and, figure 10%. We're talking about a huge number and that has not been reflected in any of our 10% or 12% next year nor as the reversal of the deferred tax account which will go from a basis of 35% with, when we would set up to whatever it is 21%. Now that's not a, that's a non-cash item. But it's going to flow through the income statement, I believe, I don't know, I believe unless the accounting people say no it goes somewhere else. But, maybe they'll say it goes directly to equity and it won't flow through. But, whatever it does its going to drop the liability side of our balance sheet, by I don't know take a number and you probably have a better number than I'm should, maybe $30 million you are going to drop out of there. So, if it goes to income and you are reducing taxes by 10% of $30 million and this by $30 million you are talking about $60 million, $60 million on 85 million shares to $0.70 a share that hasn't been reflected. Now again I'm not trying to be a financial analyst, but I look at it, because I run the company and I see that it's astounding and how is that going to be received. And I think one other reason is, two reasons that HEICO sales at the multiple sales, one because, people don't look at HEICO's EPS multiple as much as they look at…

Sure understood. Sorry Carlos, do you mind commenting on target leverage that you don't want to exceed.

Let me comment on that. The target and leverage I would go six times EBITDA, I go Senate, but let me finish before you laugh. The key to the turns of EBITDA is how quickly we pay it down. It's not the level of EBITDA, I don't want to hang out there, I will go six times if I knew that in two years it would be done into three or 2.5. And so that's really the answer, I don't want to, I don't want to be more than 2.5 or 3 times, but if there was a sensational acquisition that had all met all the ingredients that we look for, I would stretch and do it, it would have to have the margin, it would have to have the cash flow, it would have to have all the things the outlook and everything else. But if we could do it and get the multiple down to 2.5 to 3 within two years, I would go six. I don't know if that helps.

It's helpful, thank you. And then last question from me, maybe for Eric on just FSG trends within the aftermarket the 9% growth for the year, what you are seeing maybe on a regional basis and wide body platforms versus narrow body platforms?

We're doing very well in all of those areas and you know we've always had strength in all of those areas. And I anticipate it to continue, with regard to the new bill there is some talk about the wide body market perhaps being a little bit over built. And there is some questions to whether all the wide body aircraft can be absorbed tells us and really impact us all that much, but that is another issue that has to be, I guess the market will end up figuring out. But with regard to our aftermarket involvement I think that we're going to do very well on both sides, wide body, narrow body as well as the regional aircraft market.

Got it. Thank you.

Thank you.

And your final question comes from the line of Dr. Herbert Wertheim with Green Power.

Thank you. Larry, when I spoke with you earlier, I didn't ask the question, this is bothered me and I'm sure many of the shareholders, the disparity between the HEI shares and the HEI.A shares what can be done to be able to narrow that gap from 20% to something that's more reasonable or can it be converted to sometime or its all the same, because there is awful lot of value there that is not being expressed?

Well Herb, it's a very difficult question. We have had studies done as to why the A sells where it sells and so forth. The conclusion that has come from many different major investment banking firms when they study it and applying on it. The HEI shares, trade have much greater trading than the HEI.A shares, even though HEI.A shares there are more HEI.A shares outstanding than HEI. And the reason that the HEI.A does not trade as much is that institutional owners' guys like you, guys like us won't sell HEI.A. The liquidity is dry, so they won't sell this stock, it is almost Herb, become a cold stock, just like you don't sell it and we don't sell it. You can take a look on the Google list or the Yahoo and you see the major, I mean the company and the institutional investment firms that own these mutual funds invested is the bluest the blue chip funds and they will not, some of these people have owned it since the late 90s. And they just won't sell it, so it's the again these advisors have told us that it's the question of the liquidity, people like to buy and sell and so they pay up for the right to have the greater liquidity. And by the way that's, sometimes it gets below the differential gets below 10% and sometimes it goes up to 50. I'm not sure what it is today, we could calculate it, but I can take a lot of this morning, this morning its well one is about 98 and the other one is about 80. So it's, I mean you know, I guess somewhat 20%. It generally it fluctuates 10% to 20% kind of, but the problem is this; we've studied how to…

We own an excess of $7.5 million shares, so and the majority of those now are A shares, so it would certainly, be certainly helpful to us if there were some equity there. But again thank you for the explanation, I appreciate your dilemma. But we don't want you to sell the company any time soon. That's one of the reason we hold on to the A shares, because we think eventually you may do that and make us all even wealthier than we are. Thank you so much for explaining that to me, as I say for someone else more than 7.5 million shares we're critically aware of the differences in the value.

Well, I again I repeat, I thank you for your loyalty and confidence and all the comments and for all the good things you've done with the lot of our shares. So, I wish we had more people like Herb Wertheim.

Well thank you very much, I wish I had lot of me too. Have a good day and thanks a lot for answering that question from me. And again I just well I'll be rewarded if and when the company is sold and we thank you very much for all you've done Larry.

Thanks Herb.

And we have a question Rob Spingarn from Credit Suisse.

I'm back and you guys are still here, this is the longest call I can remember and I apologize for making a longer and this is from a guy who unfortunately owns no stock. But having said that, Victor I have a question for you, I have to ask you Victor, looking at the margin trend for the year at ETG and I want to ask what you are putting in the water in the commissary, because it's clearly outstanding and I know this is you've discussed it and touched on it throughout this call, but I wanted to dig a little further into that and then I ask you what the implied margin expectation is for your group in a team and again apologies if this was already discussed, I've been on and off the call given the lines?

Yes, good. Rob, this is Victor, it's a good question. It's very difficult to predict exactly what happens from placing a lot of caffeine to the water flows. I'll get into the side, we're expecting that the margin in fiscal 2018 will be around 27%, our objective while it is to do higher I had cautioned people don't get out ahead of ourselves, this is based on what our companies have told us and the information they had given us in their budgets. They historically done better, I know that you're probably going to say that, I mean they generally do better than you guide us to, but there are unforeseen circumstances that can arise. And if they do better that will be great, but I would definitely stick to the guidance on this and let's see where we come out. And there is spending some places its very product mix sensitive, you can have a great mix in a quarter and not as great in another quarter. And we may make acquisitions that have excellent margins, but if we bought a business with a 25% operating margin that would be an excellent acquisition, but obviously an up dilutive to this number. But we're not by the way factoring any acquisitions into that 2017, any acquisitions that haven't already been completed into that 27% number.

Now I know that you have a lot of niche markets among the various properties you have in ETG. So this is a question for you and really for Eric as well. To the extent that you have some price sensitive product lines and where you have competition do you see the tax reform maybe accelerating the price aggressiveness between you and your competitors?

Well, I don't, this is Victor. I'll let Eric answer his view. But, I don't really know that there is going to be much of an impact on the tax reform. I will tell you this that we do have competition on almost everything that we do. There is some form of competition somewhere, our growth generally is not a result of price increases, in fact our businesses really for ways to take cost out and to get the customers the benefit of that take our cost take out. So we really try to rely on that and recognize that we're going to we have excellent competitors in this industry and just about everything that we do tax wise, I don't know that that's going to change their thinking or our thinking at least at this point. And Eric if you want to?

And I would agree, I think it's too early, I don't really see any impact with regard to our customers with regard to the new tax code. But we will see again we, we're looking at increasing our capital expenditures a little bit taking advantage of some of the new policies that maybe in place. But I haven't yet seen with our customers any change.

Okay, all right. Thank you.

Thank you.

Thank you.

And there are no further questions.

Okay. Well, I want to thank everybody who has been on this call. Thank them for their interest in HEICO; thank them for their interesting questions. And as you know, we remain available to you to answer other questions or take comments that you may have, would reach us at our offices. We wish you a very happy, healthy wonderful holiday season and New Year. And we look forward to speaking again for 2018 fiscal 2018 first quarter call which should be sometime in mid-to-late February. So this ends our call for today. And we will speak soon. Thank you.

Ladies and gentlemen, thank you for joining the HEICO's Corporation Fiscal 2017 fourth quarter and full year earnings conference call. This does conclude today's conference call. You may now disconnect.