Good morning. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the HEICO Corporation Fiscal Year 2019 First Quarter Earnings Results. 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] Please note that today's call is being recorded. And certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand for goods and services; product specification costs and requirements, which could cause an increase to our cost and complete contracts; governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales, our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth, product development or manufacturing difficulties, which could increase our product developmental costs and delay in sales, our ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risks, interest, foreign currency exchange and income tax rates; economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our cost and revenues; and defense spending or budget cuts, which could reduce our defense-related revenue. Parties listening to or reading a transcript of 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. And I'll turn the call over to Laurans Mendelson, and you may begin.

Thank you very much, and good morning to everyone on the call. We thank you for joining us and we welcome you to this HEICO first quarter fiscal 2019 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 our operating results in detail, I'd like to take a moment to thank all of HEICO's talented team members who again were responsible for our excellent results. I'm truly proud of this dedicated, loyal group, and they continue to produce the highest quality products and services for our customers while maintaining our unique entrepreneurial culture and delivering outstanding returns to our shareholders. I'll now take a few minutes to summarize the highlights of our first quarter results. Consolidated net income increased 22% to a record $79.3 million, or $0.58 per diluted share in the first quarter of fiscal 2019, and that was up from $65.2 million or $0.48 per diluted share in the first quarter of fiscal 2018. Consolidated operating income increased 23% to $97.9 million in the first quarter of fiscal 2019 and that was up from $79.6 million in the first quarter of fiscal 2018. Our consolidated operating margin improved to 21% in the first quarter of fiscal 2019 and again that was up from 19.7% in the first quarter of fiscal 2018. Our consolidated net sales increased 15% to $466.1 million in the first quarter of fiscal 2019, and that was up from $404.4 million in the first quarter of fiscal 2018. Our ETG group net sales and operating income in the first quarter of fiscal…

Thank you. The Flight Support Group's net sales increased 13% to $287.2 million in the first quarter of fiscal 2019, up from $254.7 million in the first quarter of fiscal 2018. This increase reflects our outstanding organic growth of 13%. The Flight Support Group's organic growth is mainly attributable to increased demand in new product offerings within our aftermarket replacement parts and specialty products period lines. The Flight Support Group's operating income increased 15% to $52.9 million in the first quarter of fiscal 2019, up from $45.9 million in the first quarter of fiscal 2018. The increase reflects the previously mentioned organic net sales growth of 13% as well as an improved gross profit margin, mainly attributable to a more favorable product mix within our specialty products product line. The Flight Support Group's operating margin increased to 18.4% in the first quarter of fiscal 2019, up from 18.0% in the first quarter of fiscal 2018. The increase principally reflects the previously mentioned improved gross profit margin. With respect to the remainder of fiscal 2019, we now estimate full year net sales growth of approximately 7% to 9% over the prior year, up from the prior estimate of 7% to 8%, and the full year Flight Support Group operating margin to approximate 19.0%. These estimates exclude acquired businesses, if any. 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.

Thank you, Eric. The Electronic Technologies Group's net sales increased 18% to $184.4 million in the first quarter of fiscal 2019, up from $155.7 million in the first quarter of fiscal 2018. The increase reflects organic growth of 12% and the impact from our profitable fiscal 2019 and 2018 acquisitions. The organic growth is mainly attributable to increased demand for certain defense, aerospace, and space products. The Electronic Technologies Group's operating income increased 19% to $51.6 million in the first quarter of fiscal 2019, up from $43.2 million in the first quarter of fiscal 2018. The increase principally reflects the previously mentioned net sales growth. The Electronic Technologies Group's operating margin improved to 28% in the first quarter of fiscal 2019, up from 27.8% in the first quarter of fiscal 2018. With respect to the remainder of fiscal 2019, we now estimate full year net sales growth of approximately 11% to 13% over the prior year, up from the previous estimate of 10% to 11%, and continue to anticipate the full year Electronic Technologies Group's operating margin to approximate 28% to 29%. We also now estimate the Electronic Technologies Group’s organic net sales growth rate to be in the mid single digits. These estimates of course exclude additional acquired businesses, if any. I turn the call back over the Laurans Mendelson.

Thank you, Victor. Moving onto earnings per share. Our consolidated net income per diluted share increased 21% to $0.58 in the first quarter of fiscal 2019 and that was up from $0.48 in the first quarter of fiscal 2018. The increase in diluted earnings per share reflects strong operating performance of both Flight Support and ETG. Fiscal 2018 diluted earnings per share amounts have been adjusted retrospectively for our 5-for-4 stock split distributed in June 2018. Depreciation and amortization expense totaled $20 million in the first quarter of fiscal 2019 and that was up from 2019 million first quarter of fiscal 2018. The increase in the first quarter of 2019 principally reflects incremental impact of fiscal 2019 and 2018 acquisitions. R&D expense increased 20% to $15.2 million in the first quarter of fiscal 2019, and that was up from $12.7 million in the first quarter of fiscal 2018. Significant ongoing new product development efforts are continuing at both Flight Support and ETG as we continue to invest approximately 3% of each sales of dollar in new product development. SG&A expenses consolidated increased to $84.3 million in the first quarter of fiscal 2019 and that was up from $75.2 million in the first quarter of fiscal 2018. The increase in the first quarter of fiscal 2019 principally reflects changes in the estimated fair value of accrued contingent consideration associated with prior year acquisitions. The impact of our fiscal 2018 and 2019 acquisitions as well as higher performance-based compensation expense. Consolidated SG&A expense as a percentage of net sales decreased to 18.1% in the first quarter of fiscal 2019, and that was down from 18.6% in the first quarter of fiscal 2018. The decrease in consolidated SG&A expense as a percentage of net sales, principally reflects efficiencies realized from net sales growth,…

[Operator Instructions] And your first question comes from the line of Krishna Sinha of Vertical Research.

Hi. Thanks for taking the call. Couple of questions for Eric and a couple of questions for Victor. First, for Eric maybe, the [Technical Difficulty] seeing some tailwinds from a lack of aircraft retirements and even parked aircraft coming out of storage. Can you maybe comment on whether you are seeing those tailwinds impact your aerospace business and maybe whether you expect that trend continuing and to help some with the organic growth in the medium-term?

Hi, Krishna. Good morning. Yes, I’d be happy to answer that. Actually, in sales reviews that I had with our sales folks this week, we probably have been more impacted by retirements as compared to aircraft remaining in service. So, the answer is, I'm not aware of any in particular any aircraft that have remained in service beyond what was anticipated a while ago that have increased our sales. And we are being a little conservative, I would say, going forward. And our forward guidance assumes that we are not going to continue to run at this breakneck 13% organic growth. But, I don’t believe that the 13% has been significantly helped by extended life when we look across our customer base.

And then, obviously, you recently saw this commission -- European Commission arbitration on the engine OEMs. And I know you commented on that and that you don't expect necessarily the engine OEMs to start playing nice immediately. But, can you just give us a sense of what would the leading indicator be that would show us that engine OEM market is starting to open up to you guys a little bit? I mean, is it going to come straight from your results? Are we going to start seeing it from MRO shops, like Lufthansa and some of these other places? Are we going to start seeing some penetration there? And also, is there a possibility that you can penetrate into some of the older engine platforms that are perhaps not subject to some of those long-term agreements that the engine OEMs are locking people up on?

Krishna, I think that’s very good question. And when we look at what the opportunity is, it’s important to remember that the resolution between IATA and the other engine manufacturer, that only takes effect I believe tomorrow. However, the resolution is very clear and what's expected in both parties. And I can tell you that we’ve had a lot of very positive discussion with a number of our customers. Our customers have certainly taken note of this and I think are hopeful. And I'm hopeful that it will end inuring to really everybody's benefit. When you look at the PMA potential out there for the engines, this is not going to significantly impact the OEMs. The OEMs will continue to have a majority of the business and I think are going to do extremely well. We refer to it more as sort of nibbling around the edges. And their customers want competition. And I think that we are providing it in a way that's meaningful for us but not that significant for the OEMs. And it really won't hurt their business model. So, to answer your question, I think it first starts with discussions and then we need to see where it goes from there. But, the airlines are very aware of it and they are very intent upon using it to their benefit. I know that we are also having discussions with airlines about how they view these changes in the marketplace and how that could open up certain other markets. But, I think we will end up seeing it in our results over time. But it’s something that's going to take a while. We certainly don't have anything modeled in for 2019 and we don't have our budget yet for 2020. But, I think it's more of a long-term situation. The OEMs are very busy with the new equipment that's coming out; they’ve got their hands full with this. If they lose a very small percentage due to competition, I think that’s a heck of a lot better for them than the airlines, their customers getting very upset at them and going after them in other ways that can be far more damaging. So, I would say that we’re hopeful. And yes, we hopefully will start to see it not this year but down the road in our results.

And then, maybe just a couple of follow-ups for Victor. On ETG, another strong quarter for organic growth. And I believe a few quarters ago, you had mentioned that sometimes you get these big organic growth quarters due to a bit of pull forward in a hot demand environment. Is that what we're seeing again this quarter? And specifically too, you called out aerospace, defense and space as being the three main contributors there. I guess, that's understandable, given how those end markets are trending. But, the other industrial segment, which is also a big piece of your sales mix in ETG, what's the demand in that part of the end market? Is that helping? Can you just give us a sense of what's happening in that end market over the last 12 months?

Yes. Krishna, those are good questions. The answer is there's no pull forward -- nothing out of the unusual -- out of the ordinary in the quarter. And in terms of the other markets that we serve, they are healthy. I don't think there's anything particularly notable out of them. They weren’t as high growth organically as the other markets that you mentioned and we mentioned. But, they were certainly very good, and we’re very happy with them. And we expect them -- right now based on the orders we have, we expect to see more of the same. Now, in terms of the organic growth over the rest of the year and the growth levels over the rest of the year, the guidance that we just gave is of course what we have for you.

Your next question comes from the line of Robert Spingarn of Credit Suisse.

I wanted to stick with some of this organic growth topic and maybe follow up on some of Krishna's questions. And this applies to both segments, but you do seem to be outpacing end market growth or at least average end market growth in commercial aero et cetera. Other companies are putting up some strong aftermarket too. But I'm just wondering, how do we think about this growth? Is there a benefit from new product introduction? I think, you mentioned that earlier, Larry. Or is there a share gain? Are you taking some share in addition to just the volume growth from normal expansion in the markets? And that really is both for Victor and for Eric, and both of your businesses?

Yes. From 30,000 feet, I think it’s all of the above; it’s a little bit of each. And I think, look, they are my sons, but I think, Eric and Victor are doing an outstanding job. If you could see the amount of time and travel that they spend all over the country and the world, staying on top of these businesses, they really do an extraordinary job. But, let them comment further. But, I think it's all of the above. Eric?

Rob, Thanks. I'll start out first with regard to Flight Support Group. The new product introductions are very strong. We are doing very well. The pipeline is very full, outstanding customer interest, getting the products sold. I think, we are doing very-well. And then, as far as increased penetration, yes, I think that that continues, and we anticipate that to continue to build. We actually over -- I would say, over the last couple of years, we had been hit with a fair amount of retirements, and we see that little bit down the road perhaps starting to slow a little bit for us. I think whereas some of the other companies who would have reported, they really benefit significantly, as you know, by the initial new part stocking of new equipment that's out there. And…

The initial provisioning.

The initial provisioning, yes. And HEICO does not have that tailwind. So, ours is really -- our 13% organic growth is just that. It’s just going out, blocking and tackling, finding one new part at a time, getting it sold, I think the value proposition is very strong. We are very well respected in the marketplace. And frankly, all of the signs are quite optimistic for us.

Before Victor goes, Eric a question for you. As the OEMs start to get more involved in the aftermarket, there is some fear that prices will inflate, they will push pricing up for aftermarket parts with the traditional suppliers. Is that beginning to show some opportunity for you? Are you starting to get some customers who come in and express some concern about more price inflation than they’ve seen in the past and therefore greater desire for PMA parts?

Definitely. We hear a lot of concern out there from our customers about what the OEs continue to do. And when OEs tend to enter the aftermarket, they don't tend to be focused on reducing prices for their customers. They are really intended on getting prices higher. So, I think that that bodes quite well for us. One of the questions that we’ve been getting a fair amount in investor conferences recently is if some OEMs start entering the aftermarket and competing with other subcontractor OEMs, what really happens. And our read of that is that prices -- our initial belief is that prices are going to end up going up to the end customer because as manufacturers want to bid and get on new equipment, and if they in fact have to give a piece of their aftermarket revenues to somebody else, we don’t anticipate them to just sit idly by. I think, the airlines are going to paying the bill. Now, having said that, I don’t want to make it sound like what we do is easy, because it’s anything but. And I think while our opportunity is huge and tremendous, the challenges are very daunting. We compete against very large companies. They are very aware when we come out with a product, they don't sit idly by; they take action; they talk to the customers and say, you know you shouldn’t buy these guys’ parts, it’s no good and then occasionally they respond in with price. And it’s very hard to get the airlines focus to go do this. Now, having said that, I think HEICO is really in a very strong position, based on our 11,000 PMAs because there's really -- there is not a lot of new stuff out there. We are doing a lot of different nomenclature in different product. So, I think we are in a very good position. But, I got to say, it is very hard. I mean, this is hand-to-hand combat every day, nothing comes to us easily. But fortunately, I think we’ve got this critical mass and the combination with repair and distribution where we’re able to put up good numbers.

Thank you for that color. And then, Victor, ETG, sort of similar question, but that business is different clearly. Is it volumes, the end markets or is it the new product introductions? And is there an opportunity there where you are taking share from other folks who make similar products?

Hi, Rob. This is Victor. I think it's really a combination of the first two. I think, as well, there is some opportunity to take market share and our companies are doing that. I would say though overall, it is not a market share taking story. So, it's really a combination of new product introductions, getting on programs from historical periods, kind of the good work, the result of the good work that the companies have done historically, and growth in the markets themselves and growth of the customers’ need, as well as to a lesser extent taking of some market share. And as we go forward, by the way, Rob, I would anticipate that that should probably be more or less what the mix looks like, at least over the next year or so.

Going forward. Okay. Well, thank you all.

Thank you, Rob.

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

Victor, I have two questions for you, if that’s okay. First, I guess, on the organic growth in the quarter, up 13%, quite strong. And you said that order rates were also keeping up. I guess, what surprised you most in quarter? And maybe where are you forecasting a bit of conservatism for the remainder of the year?

I don’t know if I call it conservatism for the remainder of the year. I just, as you know, believe that when we look at this business over time that it grows organically in the mid single digits to even low single digits growth rates. So, it's just my sense that it reverts to those levels and kind of across the board that we would expect to see that. I think, this year, defense probably and commercial aviation will probably be the strongest parts of the business and will have the highest organic growth of our portfolio. But, the other parts of the business certainly are not doing poorly, and we are pretty, pretty happy with them. But again, I always guide people back to looking to the mid single digits; and if we do better that's great. And we are certainly shooting to do that and trying, and we've got a lot of great people and a lot of great companies working on it.

And then, secondly, just on AeroAntenna and Robertson, they seem to have worked out pretty well for you. Maybe if you could just give us an update on where you are in those businesses? How they’ve grown over the last two to three years since you have acquired them? Just an update on that, if that’s possible. Thank you.

Yes. They are both doing very well. We are extremely happy with both of those companies. We have wonderful teams there, wonderful people. And again, that's an example of continuing to innovate on new products. In the case of Robertson, not only on the defense product but on commercial product which has been very successful. And when we bought the business, although they were working on it and they told us that they thought they would be successful with the reaction in our own internal modeling, put that at zero. And so, that has been a nice upside for us. AeroAntenna has been successful on a number of both commercial and military products and winning new programs in addition to very strong growth in the existing programs there, as well as I would say flawless or near flawless execution on meeting customer demand and doing so on responsive turn times and at very fair prices, which by the way is also very important to us to deliver very fair value to our customers. It's always a competitive market out there and we know we have to remain competitive and keep a pencil sharp.

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

Eric, I just wanted to start off with you. And again, sorry to keep pushing on the growth question, but I wanted to get out of from maybe a different angle. You obviously didn't mention repair and overhaul when you highlighted specifically replacement parts and the specialty products. Was there much of a difference in the organic growth in the quarter between sort of the three segments within FSG or anything that stood out as particularly strong within those?

Yes. Good morning, Ken. The repair group actually had -- went backwards a little bit in terms of revenue for the quarter, but that's not unusual. The repair business can be very lumpy and it can be very seasonal. And November and December are short months historically, they are the low months. It’s not something which concerns us. And then, at other times of year, repair and overhaul way outperform. So, the answer is, I think, we are doing extremely well in repair and overhaul as well as within parts and specialty products. And I think that at the -- by the time the year is done, they are all going to end up in a similar area.

Okay. That’s helpful. And then, as I think about that I know that a lot of the material volume that goes into the repair and overhaul business you have is your own parts or a lot of it. And I know, typically your growth is virtually all volume versus price. But, I can imagine you do certainly get some price when I think about the distribution business. Is it fair to say that this quarter price was, considering volume and the repair and overhaul, was down, price was maybe a little bit better of a tailwind than it's been in prior quarters. But, in the broader context, I know it's the majority volume, but was price maybe a little bit more of a factor for you in the growth this quarter?

No. Actually, the 13% was pretty much all volume. And when you think about it, compared to other people in the market, 13% -- say 12% of the 13% is probably volume, that’s tremendous. Price is still -- we are very conservative on that. We want to make sure that we deliver very good value. So, it was really just volume increase.

Okay. That’s helpful. Very good. And then, if I could, Victor, just one for you. We are all expecting a defense budget here in the next week or two. As you look at the fiscal 2020 budget, are there any particular areas you are particularly focused on or in particular programs that -- I know you got a very broad base of business but any particular programs that are needle movers or particularly relevant for you as you think about the fiscal 2020 budget?

Ken, this is Victor. That's also a good question. At this point, no, we’ll see when it comes out. But, like you said that broad base that we have is part of our strategy. So, I think as a rule of thumb, there's nothing in particular that I'm aware of which will be important to us, but that could change.

Okay, great. And just finally, one for Carlos. You obviously brought down the CapEx spend it looks like by $5 million for the full year. Anything in particular, there, Carlos? Is there any particular areas where you’re maybe slowing investment, or is that a timing, or how should we think about that?

No. We are not slowing investment, Ken. Thanks for the question by the way. We just looked -- we had a -- our spend in Q1 was a little bit lighter than what we had anticipated. And frankly, it's not from a lack of buying equipment and our subs getting what they need, it’s just they’re very frugal. And, as I’ve talked to you in the past, we tend to see our subsidiaries buying a lot of used equipment when they can, and they tend to underspend their budget. So, taking that into consideration and looking at what was spent relative to budget in Q1, I felt like for the full year, we’re probably going to be a little lighter than our initial guess, if you would. So, no, no big changes. We are not starving anybody down in the field with their customers. We continue to supply everything they need. And this is just a refinement, if you would, based on the Q1 activity.

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

Most of my questions were answered. I have just a couple of follow-ups on Robert’s question on the new product introductions in FSG. Eric, has the amount of new products, has that changed much in sort of that 500 new ones a year? And has the mix or anything like that changed at all really with those towards a certain grouping or…

Yes. No, I wouldn’t think that anything has changed. The numbers are very consistent with where they've been in the past. We continue to broaden the types of products that we do. But, I would say, it’s all very consistent with what we’ve done historically.

Okay. And the amount -- it’s still about the same on an annual basis, right?

Correct.

Yes, okay. And just on the CapEx, I know you lowered numbers a little bit, still some pretty decent amount of spending, and it was up last year too sort of relative to the -- it had been running sort of I think a couple of -- prior years around $30 million and even lower before that. Maybe just give us a little color on sort of what some of the -- is some of this actual growth to capital spending or what are some of the bigger projects out there that…

There is no -- if you think about, we’ve done six acquisitions over the past 12 months. So, when we take on these new businesses, we do have new CapEx requirements, which is going to be incrementally more than what we had last year. I don’t think there's anything that you could point to in our pipeline of CapEx budgeting. Roughly half of the budget is maintenance, half is growth, which has been a pretty consistent pattern for the past several years. So, I don’t see anything unusual or large in the budget, kind of the normal stuff.

Okay. Carlos, while I got you, just on the -- I know this will be in the Q, some more too, but margins in the two respective segments were I think sort of flattish year-over-year on a reported basis despite the material revenue growth, and I imagine a lot of that is due to just the acquiring amortization of intangibles. Did you just to happen to have a rough ballpark, how much that impacted the quarter?

For amortization?

Yes, exactly.

Yes, I do. We probably had incrementally in amortization about 0.5 million more in expense this quarter than last year.

Okay. And then, just last question, obviously really rapid growth in the quarter, not an easy comp either. And I know your guidance obviously incorporates some slowdown. But, just on a more high level basis, are you guys seeing any signs of a slowdown, whether it’d be lead times to suppliers or from customer conversations or anything?

Look, I'll let Eric and Victor address for their segments from a guidance perspective. As Eric mentioned earlier, I don’t think we are going to -- we are not planning on continuing a breakneck pace of 13% organic growth.

Absolutely, right.

But, we do see a lot of optimism at the subsidiary level, which pushes our guidance, which lends to how we report guidance to you guys. So, it feels a lot like last year in that regard. The business environment is very good, our subs are optimistic, our end markets are very strong. And so, we are cautiously optimistic for the rest of the year that it’s going to be very similar to prior year as far as growth goes. I'll let Eric and Victor address these segments.

Yes. Within the Flight Support side, I can tell you that the material supply is very tight. There's not much excess capacity out there. And I would say, it’s in general tougher to get product than it has been in the past. We continue to be able to meet our commitments. So, we are doing fine. But yes, definitely, the market has definitely tightened up. And with the focus in particular on the new narrow body engines, I think a lot of the suppliers of older product are sort of less focused in that area, and of course that's where our focus is. And I would say that's probably another reason why we're hopeful for our business in the future because we’re sort of focusing in an area that is a bit of a pain in the neck for our competitors. And I think, we are able to serve the market and in many cases, they're okay with that.

Your next question comes from the line of Peter Arment of Baird.

Hey. Good morning. This is Asher Carey on line for Peter. Hey. Great results. Victor, maybe if I could just touch on the spacing market. A lot’s been discussed and you are clearly seeing strength in -- seems to be a lot of investment going on. If you would, could you talk about some of the puts and takes, some of the changes from the weaknesses you have talked about in the past and the visibility you are seeing in commercial and defense sectors GEOSAT? Curious if you made any shifts to your mix exposure, just how should we think about that area going forward?

Yes. Space was good for us in the quarter. We had organic growth in commercial space in the quarter. And I think as I said on the last conference call, commercial space has remained overall pretty good for us. But, I guess we had to call out what was the weakest link, if you will, arithmetically, and it was space, and within space, it was specifically the GEOSAT market. And that was less -- I don’t think the GEOSAT market has recovered. We are not projecting a recovery in the GEOSAT market, but the rest of our space business is doing well, both commercially and in defense. We expect to continue to do well there. We like those markets. But, we are watching to see how things settle out in this new world, if you will with new space. And right now, our companies are addressing both markets as appropriate, they are doing it very carefully. And I think, they're doing it very sensibly.

Your next question comes from the line of Louis Raffetto of UBS.

So, just back I think to Larry's question about margin, just want to make sure, and I know Larry sort of covered this, but was the headwind to segment margins about the $2 million from accrued, increasing accrued contingent?

Louis, good morning. This is Carlos. There was a drag on the margins for changes in accrued we had, some outperformance at a subsidiary that is eligible for an accrued the earnout this year. And so, we had to adjust that this quarter. I would say though that was overshadowed by a bigger benefit relative to our leverage on fixed SG&A costs. As we are growing revenues at this pace, we are not expanding our overhead and our SG&A spend. So, we are getting some leverage there. So, while that was a little bit of a headwind for the accrued contingent consideration, it was more than offset by that leverage we are picking up on our fixed cost.

Definitely. I just want to make sure that -- I mean the number on the cash statement was about $1.9 million. So, I wasn't sure if that was sort of the equivalent of the headwind on the income statement basically.

Yes. That’s a little higher than what hit the P&L this quarter. I think, the change year-over-year was a little bit heavier. I think, we had about a 1.2 million in adjustment for all of our accrued contingent consideration. Some of that is discounting related to all of our longer term earnouts, but the bigger one was due to performance and the subs being a little better than we anticipated.

Good thing in the long run, right?

Absolutely.

And then, Eric, I guess for you. So, it’s nice to see specialty products sort of back on the right track following couple of years of different things. Anything you can give us about what's in specialty products that’s doing particularly better I guess or is this just lack headwind I guess?

Yes. The headwind that we had in specialty products was number of years ago and that was really from industrial product where we’ve moved out of that market now. I would say, our strength is in the all of the aerospace and defense stuff that we are doing, both commercial and military as well as some space product there. It’s very strong, it’s doing very well and I expect to continue to do very nicely.

All right. Sounds good. And then, just sort of sticking with that for a second. Given some of the supply chain issues we saw in commercial space last year, and you guys don't play on the OEM side for the most parts, were you approached by anybody about, given your ability and your skill to step in at all?

Yes. I mean, we are approached all the time from customers to take on more work. And I think that that’s one of the things that is reflected in 13% organic growth. But yes, our specialty products business does do work with OEMs. And I think we've got a very good position with those OEMs where you we treat them very well, we support them extremely well and we are picking up additional product. So, I would anticipate that would continue.

And Larry, I know you sort of probably covered in your initial remarks, but just commentary on the M&A environment?

I think, the M&A environment is what I would call normal. We have a number of prospects in the works. I can't predict whether we will close, because you never know until you get to the closing table. But, I would assume that in the near future, we might be able to close something, but I never know until it's close. But, I would say, it's normal. I think, in general, prices are high. We are very-disciplined that we are not going to play in the 14-time EBITDA range. We watch very carefully. I think, one of the reasons that we have been successful is our deployment of investment capital. And I think we've done it wisely at prices that permit us to have accretive acquisitions. So, each acquisition that we make, pays for itself. And we are going to continue in that process. But, I think, the outlook for M&A is pretty standard and it’s fun.

Your next question comes from the line of George Godfrey of CL King.

Most of my questions are answered, but I'll add my congratulations on another great quarter. One question for Eric. On the opportunity in engines in the European Union, is there -- you said you would nibble around the edges, is that both literally and figuratively, meaning that parts of the engine you won't touch or would you look at the entire engine opportunity? And then, is the margin profile of providing those parts versus other components on the plane higher or lower? And I'll leave it there. Thanks.

I would -- George, great questions. I think, the margin opportunity in terms of percentage is fairly similar. Our expertise is in a certain area. And I would anticipate we continue to focus in that area. In general, we do expendables parts, which are replaced typically at every shop visit or at most shop visits. And then, we also do a certain repairables as well. So, I think we’re going to continue to focus in those areas. We don't do life limited parts. And that really is the bread-and-butter for the original equipment manufacturers. When I was speaking about nibbling around the edges, I'm talking about doing all sorts of products. There are many products that are in the sort of the pain in the neck for the OEs to mess around with and support. We've got a lot of different part numbers and you’ve got to support them. And it’s sort of erratic or inconsistent use by the customer. And that's really the stuff that we focused on. So, what I meant was the OEs going to continue to focus on their bread-and-butter. They are going to continue to make a majority of the profit associated with those. I think, it’s enough to satiate HEICO and to -- where we can do very well and our customers to get meaningful savings. But, the OEMs will continue to generate very good margins and we are not a threat to their business model whatsoever. So, I think that’s sort of the world in which we are looking. Of course, they want to try to maintain everything, I get that. But, that’s not always practical. And if they try to go down that road and they maintain everything, then you get into a situation where the customer really gets upset because there's no outlet. At least by having HEICO in there, we are able to generate some savings, generate some competition, the airline is happy, it doesn’t significantly impact our competitor, we are happy. Pretty much everybody wins. So that’s sort of what I meant by that comment.

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

This is George Peaker [ph] on for Mike. I guess, a lot of the questions have been answered, but I have one that I guess is a near-term just question, it has come from investors. And that revolves around the aircraft lease portfolio of General Electric. Some of our contacts in industry have highlighted the fact that GE was very protective of the parts business. And now that you have the potential that spinning off into private equity hands, how do you think about that opportunity?

We think it's really only upside for us. I think, you're right that because they were in the leasing business and in the engine business, they were really the ones who drove this. And I think a lot of the resolution with the European Commission addresses these points. A lot of other leasing companies have viewed it as a competitive advantage to permit the use of alternative material. And we've got many examples where the world's biggest lessors do permit the use of HEICO parts. So, I think that this is something that will continue. I don't know whether private equity or somebody else is going to buy that business. I think that as long as it's done on an arm’s length basis, there would be very good opportunity. There really is no -- in our opinion, there is no reason why a lessor would restrict. This something that was created by one lessor for obvious reasons. And we see the tide moving in the other direction. But again, it will take some time to be able to do that. And it is important that the airlines negotiate with their lessors to get relief to be able to use alternative parts that they are not put at a competitive disadvantage. Certainly, if a leasing company does not want to permit the use of alternative parts, then they need to have a materially lower lease rate to offset the damage that they're causing to their lessees. And most of lessors don’t want to do that. So, we think the opportunity would be very good for us.

I guess, my last question just revolves around additive manufacturing. We talked about how the pricing environment, especially for OEs coming into the aftermarket is not necessarily beneficial to the end item user. But, it seems like that there is from the OE perspective, there is a very push into additive manufacturing, light weighting of parts and multi-metal printing. That seems to lead to a conclusion that R&D will have to go up for any of the aftermarket providers. Can you provide any color to that? And that's my last question.

Sure. Look, a couple of things. We’ve been using 3D printing for, I don’t know, 25 years. So, we are certainly familiar with the technology. And we use it largely in tooling and in making prototypes. You're right that recently over the last couple of years some of the manufacturers have been using it in newly certified applications. We believe that when it comes time that we will definitely have the technology to be able to produce an interchangeable part, we think that it’s fairly limited in terms of the market products that we provide. I don't think a lot of what we make is going to be 3D printed. There is a very famous example of fuel nozzle part, which we actually don't make, and that makes sense to eliminate the number of detailed parts in 3D print. And I think there will be a number of examples. But, I think when it comes time for HEICO to enter that market, we will be completely prepared. And I do not anticipate a large capital expenditure to be able to do this. There are a lot of companies out there offering 3D printing services, some of those companies have been bought, they’ve been more for trading than they have been for actually doing business. We have not purchased any of them, because we didn't think it was wise. And I think that's probably proven to be the correct or it’s definitely proven to be the correct position to take. But, the capacity exists and we will be there. And then, again, to be clear, we do not believe that airlines will be printing in significant quantities or even material quantities replacement parts. There may be a couple of one-off things here or there, but this is not going to be a large opportunity, certainly not for the next many decades. So, we are watching it. We are right on top of it. And I don't anticipate any disruption for us.

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

We’ve seen a push by the OEMs and others to get deeper into real-time analytics. Just interested to hear if any of those business models are matriculating into HEICO's outlook in any way, either internally or externally?

We are familiar very much with the analytics, and most of what we provide would not be impacted by them. So, we think that our business of providing products and services is sort of where we want to be. I don't want to rule out doing anything. If we find a business that's good in a particular area, again, we are very familiar with those models. But, if we find something that makes sense where we can get decent returns and provide good value to our customers, we will definitely go out and do it, and analytics would definitely fit that category.

And then, I guess, it’s just fitting all end on a PMA question here, but I understand the conservatism and I think investors appreciate that. But, again, just looking at any cracks in the dam, there is some reports that maybe Latin American airlines are more open to PMA. Just wondering if you are seeing any specific regional areas, look to take up PMA before any others?

Of course since our competitors are on the phone call, we are a little sensitive about providing specifics in terms of customers, geography, products, but I can tell you that we are doing very well globally. We are all around the world. The value proposition is the same. When fleets mature, they become very expensive to operate. That’s really our sweet spot. And we continue to be extremely active and we’re really active in every region of the world, making sure that people know what we can bring to the table. And I would say, we are doing quite well in all the regions.

And there are no further questions at this time. I'll turn the call back over to management.

Thank you very much and thank you to everybody who is on this call and for your interest in HEICO. As you all know, management remains available to you, give us a call if you have question or comment. We will be around. So, we look forward to speaking to you after our second quarter is released, which would be -- that call will be sometime towards the end of May. So, for those of you up north, brave the rest of the winter. And for those of you in South Florida, enjoy the weather. So, that is all that we have for today. And we will talk to you soon.

And this concludes today's conference call. You may now disconnect at this time.