Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the HEICO 2016 Third Quarter Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. Certain statements made in this call will constitute forward-looking statements, which are subject to risks, uncertainties and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including, but not limited to: lower demand for commercial air travel or airline flight, changes or airline purchasing decisions, which could cause lower demand for our goods and services; product development or product specification costs and requirements, which could cause an increase to our costs to complete contracts; governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers and competition for existing and new competitors, which could reduce our sales; our ability to introduce new products and product pricing levels, which could reduce our sales or sales growth; product development difficulties, which could increase our product development costs and delay sales; our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk; interest and income tax rates; economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs, revenues, and defense budget cuts, which could reduce our defense-related revenue. Those listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including, but not limited to filings on Form 10-K, Form 10-Q and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. I would now like to turn the call over to Mr. Mendelson.

Good morning, everyone, and we thank you for joining us and welcome you to HEICO third quarter fiscal '16 earnings announcement telecom. 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; Tom Irwin, HEICO’s Senior Executive Vice President; and Carlos Macau, our Executive Vice President and CFO. Now before reviewing our record third quarter operating results in detail, I'd like to take a few moments to summarize the quarterly highlights. Our third quarter consolidated net sales, operating income, net income represents record quarterly results and that was driven principally by record net sales at both of our operating segments. Our consolidated net income in the third quarter of fiscal '16 increased 22% in both net sales and operating income increased 19% over the third quarter of fiscal '15. Consolidated net income per diluted share increased 22% to $0.62 in the third quarter of fiscal '16 up from $0.51 in the third quarter of fiscal '15. The Electronic Technologies Group set a quarterly net sales record in the third quarter of fiscal '16 improving 40% over the third quarter of fiscal '15 and that increase principally reflects net sales contributed by our fiscal '16 and '15 acquisitions, as well as increased demand for certain of our products. The Flight Support Group set a quarterly net sales record in the third quarter of fiscal '16, improving 8% over the third quarter of fiscal '15 and that increase reflects net sales contributed by our fiscal '15 acquisitions, as well as organic growth of about 4%. Cash flow provided by operating activities was extremely strong increasing 42% to $172.4 million in the first nine months…

Thank you. The Flight Support Group's net sales increased 8% to the record $222.6 million in the third quarter of fiscal '16, up from $206.6 million in the third quarter of fiscal '15. The Flight Support Group's net sales increased 9% to a record $647.4 million in the first nine months of fiscal '16 up from $591.4 million in the first nine months of fiscal '15. The increase in the third quarter and first nine months of fiscal '16 reflects net sales contributed by our fiscal '15 acquisitions, as well as organic growth of 4% and 3% respectively. The organic growth in the third quarter and first nine months of fiscal '16 is principally attributed to increased demand in new product offerings within our aftermarket replacement parts in specialty products product lines. The increase in the first nine months of fiscal '16 was partially offset by lower organic net sales from our repair and overhaul parts and service product lines, principally resulting from the mixed of products repaired, which required less expensive repair and overhaul services in addition to softer demand from our South American market. The Flight Support Group experienced organic revenue growth of 5% and 6% in the third quarter and first nine months of fiscal 2016 excluding our repair and overhaul parts and services product line. The Flight Support Group's operating income increased 7% to $42 million in the third quarter of fiscal '16 up from $39.3 million in the third quarter of fiscal '15. The Flight Support Group's operating income increased 10% to a record $118.8 million in the first nine months of fiscal '16, up from $107.5 million in the first nine months of fiscal '15. The increase in the Flight Support Group's operating income in the third quarter and first nine months of fiscal 2016 is mainly attributed to the previously mentioned net sales growth and a gross profit margin impact from favorable net sales volumes and product mix within our aftermarket replacement parts in specialty products product line. These increases were partially offset by a less favorable product mix within our repair and overhaul parts and services product line, higher performance based compensation expense and changes in the estimated fair value of crude contingent consideration associated with the prior year acquisition. Additionally, the first nine months of fiscal '16 reflects an increase in amortization expense of intangible assets. The Flight Support Group's operating margin was 18.9% and 19% in the third quarter of fiscal '16 and '15 respectively and with 18.3% and 18.2% in the first nine months of fiscal '16 and '15. With respect to the remainder of fiscal '16, we continue to estimate the Fight Support Group's full year net sales growth to be between 8% and 10% in the full year Fight Support Group operating margin to approximate that of fiscal year '15. Now I would like to introduce Victor Mendelson, Co-President of HIEICO 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 40% to a record $136.2 million in the third quarter of fiscal '16 up from $97.2 million in the third quarter of fiscal '15. The Electronic Technologies Group's net sales increased 34% to a record $372.9 million in the first nine months of fiscal '16 up from $277.4 million in the first nine months of fiscal '15. The increase in the third quarter and first nine months of fiscal '16 reflects net sales contributed by our fiscal '16 and '15 acquisitions, as well as organic growth of 1% and 6% respectively. The organic growth in the third quarter and first nine months of fiscal '16 result in mainly from higher sales of certain space and medical products with organic growth in the third quarter of fiscal '16 moderated by lower net sales of certain defense products. As we have commented many times before, the net sales within our Electronic Technologies Group are often lumpy on a quarter-to-quarter comparison. The Electronic Technologies Group's operating income increased 38% to a record $33.6 million in the third quarter of fiscal '16 up from $24.4 million in the third quarter of fiscal '15. The Electronic Technologies Group’s operating income increased 35% to a record $89.3 million in the first nine months of fiscal '16 up from $66 million in the first nine months of fiscal '15. The increase in the Electronic Technologies Group's operating income in the third quarter and first nine months of fiscal '16 is mainly attributed to the previously mentioned net sales growth partially offset by an increase in amortization expense from intangible assets and higher performance based compensation expense. The Electronic Technology Group's operating margin was 24.7% and 25.1% in the third quarter of fiscal '16 and '15 respectively and was 23.9% and 23.8% in the first nine months of fiscal '16 and '15. With respect to the remainder of fiscal '16, we continue to estimate the Electronic Technologies Group's full year net sales growth to be between 29% and 32% and the full year Electronic Technology Group's operating margin to approximately 24%. I’ll turn the call back over to Larry Mendelson.

Thank you both Eric and Victor. We're going to talk about diluted earnings per share, consolidated net income per diluted share increased 22% to $0.62 in the third quarter of fiscal 2016, that was up from $0.51 in the third quarter of fiscal '15 and increased 17% to a $1.64 in the first nine months of fiscal '16 again up from a $1.40 in the first nine months of fiscal '15. As previously mentioned on last quarter's call, one-time non-recurring acquisition costs totaling $3.1 million were incurred in the first quarter in connection with a fiscal '16 acquisition. These acquisition cost reduced our consolidated net income per diluted share by $0.03 in the first nine months of fiscal 2016. Depreciation and amortization expense totaled $15.4 million and $11.9 million in the third quarter fiscal '16 and '15 respectively and totaled $44.6 million and $35.1 million in the first nine months of fiscal '16 and 15. The increase in third quarter and first nine months of fiscal '16 principally reflects the incremental impact of higher amortization expense of intangible assets attributable to our fiscal '15 and '16 acquisitions. R&D expense increased 35% to $12.7 million in the third quarter of fiscal '16. That was up from $9.4 million in the third quarter fiscal '15, and increased 13% to $32.7 million in the first nine months of fiscal '16 up from $28.9 million in the first nine months of fiscal '15. Significant ongoing new product development efforts are continuing at both Flight Support and ETG as we continue to invest approximately 3% to 4% of each sales dollar into new product development. We believe that our commitment to invest in new product development has proven very effective and continues to be a significant part of our long term growth strategy in both…

[Operator Instructions] And your first question comes from the line of Larry Solow, CJS Securities.

Hi, good morning. Wondering just on Flight Support, just on the aftermarket specifically, seems like trends pretty steady that sort of good way to characterize it, maybe the industry is flat, slightly growing and you guys are taking your usual three, four points better than that, has there been a change in the aftermarket in the last few months?

Hi Larry, this is Eric, I'd be happy to answer that. Yes, certainly we've seen a little bit of pick up in the market again for us. Our sales, our organic growth is driven primarily or newly exclusively from volume increases as opposed to price increases. Whereas certain other suppliers have price embedded in there. So yes, I think that particularly on a volume and overall basis that we are outgrowing the market. We had seen some firming in demand. If we go back we'd like to talk about sort of the timeline of the aftermarket sales development in the industry and if you look back, you will see that there was very high organic growth sort of in the mid 2000s and then of course with the high oil prices and the recession of 2008, '09, '10, the industry was down, 2011 the industry started coming back, HEICO was up about 20%, a low 20% organic growth around the 2011 time and then it sort of flattened out in 2012 and 2013 and then in 2014 again we saw sort of mid teen or high teen organic growth and it's been flatten-out, it is coming back. I feel that very strongly that HEICO can continue to outgrow these industries. We will do that sort of that at different paces. In other words at times when a lot of new equipment is coming into the market, our organic growth - outgrowth if you will, will be lower than at times when the products are more mature. And I can tell you we've got a lot of new products in development and our business units are taking advantage of the opportunities that are out there. We had a worldwide sales meeting last week and we've got a lot of new opportunities in both the parts and the repair side that I think are going to be very good, our revenue and profit generators over the next - a number of years. So to answer your question I get some summary, yes, we do see a bit of affirming, I don't see going back if will to the 22% growth - 21% growth that we saw in 2011 or even the high teens that we saw in 2014, but I do see us continuing to outgrow the industry and it's still is a very good business.

Excellent. Again I appreciate that answer. Just real quick on the repair and overhaul side, obviously South America that's probably not going to change any time soon, but just in terms of the mixed issue, is that something that will continue do you think or do you think - as you look at to the next year that should at least firm up and maybe start growing again?

What we actually saw in the third quarter, the South American market starting to firm and we do anticipate continued improvement in the South American market. So I think if you will some of that weakness is sort of behind us. But we are being very careful and very aggressive in all of our markets.

Got it, great. Okay, great. Thanks.

And your next question comes from the line of Kevin Ciabattoni, KeyBanc Capital.

Hi, good morning, guys. Nice quarter. Thanks for taking my questions here. Starting on ETG, we saw a meaningful deceleration in organic growth in 3Q relative to what was a very strong second quarter, talk a little bit about what drove the slower growth there? I know you mentioned it, it tends to be a lumpy business and it sounds like some of it was defense related and just wondered if there is any more specific color or programs you can point to in the quarter?

Kevin, hi, this is Victor. It's a good question and as you noted and if you look back at our conference calls and our earnings in the ETG over the years, it is lumpy like this, you know, we'll have quarters that have low organic growth or negative organic growth and so it isn't unusual. It isn’t the sort of thing that we don't expect to happen and I think it will continue to be the case going forward. Specifically in the quarter we're - we had the negative organic growth in some of the defense businesses. It was really more related to what would be the movements in shipments between quarters. It was across a few of the businesses. I would note that the businesses we acquired last year and earlier this year, I had very nice organic growth, but of course that's not included in the organic growth figures the way we computed. But those had organic growth and it would have changed the organic growth picture obviously. They grew organically nicely over the time from when we acquired them and the prior year period and from the point at which we acquired them. So, we continue to like those businesses and we feel pretty good about it.

On that note, I mean maybe you guys give an update on how the Robertson acquisition is tracking obviously, that's been a big one, and what you're seeing in the broader helicopter market from your end?

Sure. Well, couple of things, a Robertson has been a great acquisition for us. It's performed as we've expected. And we are - we continue to be very pleased with the entire team there and what they're doing. In terms of the broader helicopter market, Robertson is really a defense business and serves defense rotorcraft, as opposed to being primarily a commercial rotorcraft business. So we don’t pay a lot attention to what’s happening in commercial rotorcraft. We know it's going through a tough time as we've talked about though we think there is opportunity for us in a segment, in a slice of commercial rotorcraft. We don't think that will be the dominant factor in Robertson for us, but it will be a nice adjunct for us. And that's continuing to proceed as we expected in according to our own internal plan. So that part really doesn't track with overall helicopter deliveries that would be kind of a little bit more of a retrofit opportunity and then with helicopter commercial deliveries later. But again it is more defense business.

Any update I guess maybe it should have been more specific, but any update you can provide and kind of what you're seeing in the military rotorcraft business programmatically?

I don't think we've seen any material changes programmatically. And of course, we're now in the period we redo our budgets for the upcoming year. So we start to really dive deeply into that as this quarter wears on toward the end of the quarter and we get into the beginning of the first quarter, so I have a better sense of that in December.

Thank you, Victor. And one last one for you Eric, I mean just big picture any changes you're seeing out there in terms of general airline purchasing behavior inventory levels that type of thing?

No, I wouldn't say we’re seeing any changes, I think it's pretty much consistent the way that it’s been. We see a tremendous - frankly a tremendous enthusiasm for our products whether it's on the new parts side or the repair side distribution. There is significant focused at the airlines, and I think what we've been doing with them has really caught on in the pipeline and I must say quite robust for us in terms of new product development both on the parts as well as the repair side. So I'd say just the greater acceptance across the board. We've seen some examples of new generation parts prices, and they are just out of sight. I mean it makes - some of this stuff makes the prior generation look like they were giving it away. And the airlines what I'm very happy to see is so early in the cycle of the airlines coming to us as they see unfairness in the pricing practices of the number of OEMs having them come to us with those projects. And so I can tell you our people are very excited and motivated to bring this on. So I would say that in terms of airline purchasing behavior probably a shorter cycle time now in the development of newer products than we've seen in the past, which I would say to be expected as the company continues to grow and gains acceptance in market share throughout the world.

That's good color. Thank you, guys.

And your next question comes from the line of Ken Herbert, Canaccord.

Hi, good morning. I first wanted to ask a question of Eric if I could, you’ve highlighted several times sort of new product opportunities specifically within the aftermarket replacement parts, as well as specialty products and repair. But within aftermarket replacement parts, can you provide any more details on where you're investing for the new products, where you're seeing the most demand maybe from your airline customers, and sort of what you see as the priorities here or where we should be looking specifics around the new product introductions?

Yes, Ken thank you for your question. I wish that I could talk about that, but we need to be very careful with regard to speaking about a particular customers or product types. So I'm not able to provide specifics around it, but I can tell you that I think the OEM, the new OEM build cycle was rather rapid and perhaps the airlines didn't ask a lot of questions upfront about how much the stuff has going to cost to be maintained. So the airlines are coming to us with these opportunities. So I would say it's somewhat across the board in the products that we offer.

Okay. Did you see growth if you think about your legacy or older portfolio with an aftermarket replacement parts, was that growing in the third quarter?

Yeah, I would say that yes it did grow. I mean, one of the phenomenon in the history of our business is we get on a platform a number of years into the program and then we ride it until the sunset. So there is always aircraft that are coming out of the fleets. So we do see on certain products reduction in demand, but of course you've got the majority of aircraft or just continuing to age and stay in the fleet, so we see an increase there. So yes, we are seeing an increase combined with our new part sales.

Okay. That's helpful. And then just finally, obviously you are not giving ‘17 guidance yet, but you have alluded to the surge in organic growth in 2011 and again in 2014. As we sit here today, obviously probably not of the same levels as those two prior peaks, but do you currently now think 2017 you could see double digit organic growth within the FSG segment?

Yes, I think it’s too early to predict that. Right now we are doing our budgets and we do a bottoms-up budget by subsidiary where they go by customer, by part number, by month. So that’s an extremely comprehensive exercise as you can imagine and I don’t yet have those budgets from the businesses. So, I honestly can’t give you an answer on that. However I certainly would not anticipate 22% organic growth like we had in 2011, nor would I anticipate high teens that we had, yeah 20% growth that we had in 2011 or high teens that we had in ’14. But I do see continued firmness, continued growth in the market.

Okay. So fair to say that you would expect to see some acceleration of the growth over sort of the mid-single digit organic growth this year in '17?

Again we are pulling the budgets together right now, so once we see that I will have greater granularity and be able to give a closer indication. But I think sort of consistent with what we have been doing in the past and continued firming I would prefer to term it at this point until I have greater data.

Okay, fair enough, I will let that line of question to go. If I could just one final question for Carlos maybe, you had obviously pretty significant debt reduction in the quarter, so we assume similar reductions in the fourth quarter and then maybe just as part of that, any commentary you can provide on what you are seeing in the M&A pipeline. Thank you very much.

Sure, Ken, this is Carlos. We plan to generate a significant amount of cash in Q4, and of course after investing in our businesses and new product development et cetera, we take that money and pay down debt to open up opportunities to do more acquisitions. So you should expect to see a continuation of that trend.

Okay, great. Thank you very much. Nice quarter.

And your next question comes from the line of Sheila Kahyaoglu, Jefferies.

Hi, good morning, guys, good quarter. Good morning, Eric, just a follow up on the aftermarket activity. I was just wondering if there's anyway, if you are seeing any change given some retirement to aircraft like the MD-80s. Are you seeing any notable movement in your aftermarket with regards to aircraft retirement?

Sheila, thank you for your question. When we look back at the organic growth of high teens that we had basically the end of '13, the beginning of ’14, I think a lot of that was due to unexpected maintenance that ended up occurring on aircraft that airlines thought was going to come out of the fleet, but didn’t come out of the fleet because basically OEM production delays. So we have seen some signs that some airlines are going to continue flying certain aircraft that had been predicted to come out of the fleet. There was an article that I just read this morning and we have had this information now for a number of weeks that American Airlines had planned on pulling all of their MD-80s out of service by the end of 2018. And now an article that I just read this morning confirms that they plan on keeping them another I don't know the seven years or so beyond that. So if that is the plan they've got significant maintenance, I think that probably will have to be performed. And other airlines as they - I don’t want to just highlight American, but just because there was news article today if you will but other airlines are able to continue time these aircrafts as well. And I'd like to point out that airlines like American are able to renovate the interiors of the aircraft and give a passenger experience on an older aircraft that just as good as the passenger experience on a newer aircraft. And you've seen Delta do this and other airlines as well. So with a very sensitive customer that's looking for the best price, they are able to provide I think a very good product using already paid for fully depreciated equipment. So if they do that - if they continue to do that, there will be an increase in demand for parts, so parts and repairs associated with those aircraft. And I think we're starting to see a little bit of this, but I would prefer to wait and see it from other airlines as well before if you will predicting that it's a trend. I think it makes smart business, I mean there is no reason why as long as revenue passenger miles stays where it is and fuels stays in the area that it is, I think this makes complete sense especially if interest rates start to tick up a little bit but until we see the demand for the parts, I'd rather sort of hold it off on it because it's a little speculative to guess to when if and when it will come through but fortunately we are seeing some opportunities there.

I have asked this before, but I guess is there any way you could quantify what portion of your aftermarket parts go in aircraft that are 5 years younger, 5 to 10 or 10 years an older, is there any breakout that you guys look at?

No, we do look at various metrics, but they don't fallout exactly that way, so I'm reluctant to and I don't have them in front of me but we do look at them. I'd say that for the first five years that an aircraft comes out, there is very little demand, normally for us the demand would kick-in in years if you will pen-through '15, I think maybe we're seeing that a little bit sooner now, because of the pricing and frankly HEICO's reputation in the marketplace. So I think that there is opportunity there notwithstanding some of the engine headwinds as a result to some of the power by our contracts, but we feel very confident that we can make that up in other areas, as well as continuing to develop more engine parts. So, I'd say we're probably going to develop parts and sell them sooner than we have in the past. But our business is definitely - I'd say the majority of our business is in the years roughly 15 to 25 that since a new aircraft was delivered.

Got it. Thank you for the color. And then I guess maybe this one is for Carlos, is there any way you could talk about the first nine months of the year, how do you think about the guidance, just the moving parts in terms of higher compensation and amortization expense that consider contingent considerations and any FX adjustments that you could maybe - if you could quantify them or they are net neutral as far, or a net positive to your operating earnings?

Well, as far as the forecast if you would for the year, I am pleased that we're on forecast and in the bottom line we are exceeding as indicated by our jump in the guidance. Obviously with the seven acquisitions we've done over the last 15 months, we're going to have a lot more amortization expense and of course those are not things that we planned for, right. So that's incremental to decreasing margin and frankly with the accounting rules that can be quite dramatic. So those are things that pop up through the acquisition process and I'd tell you that the - when we buy a new company you'd be asking many times about margin expansion and what winds up happening is existing companies expand margin and are the companies we acquire perform more often than not as we expected it’s not better and then we get this drag of amortization which can be anywhere from in the FSG may be 2 percentage points and ETG its historically around about 4 percentage points. So it’s a substantial number that, that drags the - that increases our SG&A if you would as a percent of sales. Performance based comp is triggered; it’s pretty much across the company based on growth in operating income cash flows. And so as we continue to report extremely strong cash flows we will have - we will have some additional performance based compensation expense for the HEICO leaders and the subsidiaries and abroad. So those are things that for the quarter are what I would call expected. We do have some FX adjustments like you mentioned related to our euro borrowings when we acquired air works we did take out some euro debt. And we’ve had - last year we’d some favorable outcomes from translation adjustments on net debt, because the dollar get strong against the euro, and it's gotten little weaker this year, although, we’ll see how the year plays out depending on how the fed reacts with interest rates and how the dollar trends it could be in a positive or negative. So those address the variables you asked Sheila.

Okay. Thank you.

Sheila, this is Larry. I just want to add one thing which I think you and most of the people on the call are aware off. Because of the accounting rules and so forth as Carlos was describing we have this amortization expense. From an operating point of view we ignore amortization of intangibles that because it becomes confusing, it’s in sense arbitrary. You really don’t know we have rules to say you have to write it off. And quite honestly I always question when the company is growing doing well and doing better, why we're writing off the intangibles customer list and things like that. But those are the accounting rules and we’re abide by the accounting rules, but in my opinion to truly understand the business as the management does we focused very, very hard on cash flow, because that’s where the rubber meets the road. And as a brilliant friend of mine one time said earnings per share is opinion and cash flow is fact, we can't fudge the cash flow, nobody can. So that to us is the most critical and it shows me as the CEO where we're really going. If one of our subsidiaries tells me they're making all this money and I say where is the cash and it winds up in inventory receivables of fixed assets and everything else, we're not getting anywhere. So in my opinion the key to our business is watching that cash flow. And as you know, we had a very, very strong cash flow year and we expect it to continue and that's just my color on how our business operates.

Sure, thank you. I appreciate it.

And your next question comes from the line of Eduardo Finkler, FK Capital Management.

Hi, good morning. Nice quarter. Regarding the repair and overhaul parts and services, I just wanted to ask if you are able to identify the main reasons for the decreased comes from demand, or is it more from product mix. And also if you are maybe seeing any trends in some OEM security maintenance over the life of the product basis?

Yes Eduardo, we - most of the weakness has come from the South American markets, I think that has been fairly across the board as the result of some of the turmoil and prices that has fallen and a drop in demand, I don’t think it's been in any particular - any particular area, I think it's been pretty broad based in terms of customers as well as product types. OEMs continue to be very aggressive that's nothing new for us, and as a result, we respond in a very aggressive way, and we believe that we're continuing to grow our market share around the world and specifically in South America as well. We also had a phenomenon where the average, if you will the average ticket price, average invoice price was a little lower because some of the components needed slightly less comprehensive overhauls in part they may have needed, but again we're seeing that this is turning around now.

Okay, great. Thank you.

And your next question comes from the line of Jim Foung, Gabelli & Company.

Hi, good morning, guys, good quarter. So, I want to first ask about Inertial Aerospace, it sounds like Northrop is a new customer for you guys and maybe you could address that and just wondering how big this potential sales be, I mean seems like just kind of new platform for you guys?

Jim, thank you for your question, this is a very good point that we haven’t covered before and one thing that I am very excited about. Actually Inertial Airline Services was in the market competing with Northrop Grumman and what happened was over time we developed a relationship with Northrop Grumman where Northrop Grumman sold us their equipment in their inventory and has licensed us, and has gotten out of the overhaul of their own components. So they in fact have notified their customers to send their parts to HEICO and we will perform the overhaul on their parts - on the components using a Northrop Grumman parts when we can get them, as well as our own proprietary repairs, and we will pay Northrop Grumman various fees along the way. So I think the model is very exciting because it shows that where we were in a competitive situation with somebody we were able to - if you will put that behind us and work together to satisfy the market as the exclusive supplier of these products. And I think frankly the opportunity to do this with other OEMs exists and I wouldn’t want to make any prediction as to what we may be able to do, but I'm very excited as HEICO’s reputation has grown. We've seen the ability to partner with OEMs both on the commercial as well as on the military side. And actually I point out that on the military side we only partner with the OEMs, we don’t compete with them or very, very little competition I should say. So I think that there is opportunity here for HEICO and OEMs where applicable to work together and provide a solution. That doesn’t mean we are going to stop doing our standard business, we are going to continue to do that, but I think it shows if you will a mutual understanding that HEICO and the OEMs can also work together to support the airlines and reduce the airline operational cost. In terms of size, we are not able to give specifics on that but again we are very excited about the business.

Yes, sounds like a great relationship here and partnership for opening up additional OEM business.

Thank you. Yes, we agree, and we are very, very excited about this.

And then I guess, secondly there's been a lot of deferrals of wide body aircrafts. A new delivery of wide body aircrafts from various airlines because of the over capacity there, and I guess that presumes that they're just going to keep the existing wide body airplanes longer. And I'm just kind of curious how big of a revenue streams are wide body for you and what kind of potential upside could you see as airlines keep the existing wide body airplanes longer?

Actually, I don’t have in front of me the statistics, but we have a mix of the two and I would say it’s probably somewhat related to overall seat count in the industry. So I am guessing that maybe our businesses in the area of two thirds narrow body, one third wide body, but that’s just strictly a guess, and because again I don’t have the data in front of me. However, I do agree with you that if you look at the cost of operating these wide bodies and cost of buying the new equipment, the maintaining the new equipment airlines are able to put in beautiful new interiors provided by companies like BE and Zodiac and are able to offer an incredible customer experience. So, I think that there is good opportunity to extend the lives of some of these aircrafts. We've seen American airlines I think push out some A315 deliveries and of course there's general, I would say little bit of weakness in the new wide body market. But it's hard to justify those - some of those new aircrafts that at very high prices. So I'd assume that we'll see some opportunities there.

Are the dollar figures with wide body components greater than narrow body?

I would say on probably on an airplane basis, I would say probably in general I mean when you look at systems that are based on the ratio of seats obviously there would be upgrade or opportunity on a wide body than on the narrow body. For example, four engine airplane versus two engine airplane, so I think there is good opportunity there.

Great, okay…

Jim, this is Larry. I just want to make one comment. I thought that your question, the first question that you asked was very incisive and when you started to probe into the opportunities of working with the OEMs similar to the Northrop transaction. And I think that this is a very fertile area for us. I think that we would like to proceed and I think it's very likely that other OEMs will look at this Northrop deal. It's a win-win for Northrop and for HEICO, and it makes a lot of economic sense for both of us. And I think other major OEMs will realize the value of the structured deal like that, and I would not be surprised to see HEICO enter into similar arrangements with other companies.

Yes I think it's a great market opportunity there. I kind of sense that when I kind of read that in press release, so good luck with that. Good platform, and thanks for taking the call. And I look forward to seeing you guys in the couple of weeks.

Yes, we will. Thanks, Jim.

And your next question comes from the line of Robert Spingarn, Credit Suisse.

Hi, good morning. This is Joe on for Rob. Thanks for taking my question. I wanted to ask you about your organic growth expectation at ETG sort of following up from Kevin's question. I believe previously you are looking for mid-single digit organic growth and I think today you characterized that as modest organic growth for the full year. So just wondering if that a slight change there, perhaps a little bit weaker than before? And Victor to the extent that there was movement in shipments between quarters, maybe you don’t expect to fully recover here in the last quarter. How should we think about that?

Hi. This is Victor. So I think we are still looking for mid to low single digits organic growth out of the ETG kind of in the range that we have historically and we'll see how it falls out. On the second part of your question, I think that's probably the case, although, we don’t really know what we'll see in the fourth quarter for sure, and we want to be careful and sort of conservative, I've got guys who are absolutely convinced that we'll see it in the fourth quarter and so I'm to be a little more conservative on it. And that would of course obviously benefit 2017 and so on. But we'll just have to wait and see how that plays out. But I wouldn't call it earth shattering in either case. So I don’t think it's a case where the ETG is going to collapse or reach astronomic proportions as a result of these.

Right, understood. And just on the margins there as well. You are still expecting approximately a 24% margin for the full year, so the implication is that the fourth quarter margin is coming down a good bit sequentially and year-over-year. So I was just wondering what's driving that pressure?

That would be more mixed. That would be the biggest factor there. By the way just as a side, we talked about obviously the GAAP margin and the way we, we look at that if you look at the business how it’s actually performing on the trading level. There is about 400 basis points of amortization so, with kind comes to an average fall all in of around 28 basis points for the total in the year, excuse me, 28% - year and that’s very strong so we’re pretty happy with that. Carlos, if you have something to add there.

I'm just going to say, sort of amplify what you said, prior year Q4 the ETG really not knocked about - almost 29% OI margins and that was unique things and some fantastic business opportunity took advantage of last year. When we gave guidance this year and that continued to - give the same guidance throughout the year, we basically said that the full year would approximate really what the margins ETG has experienced in the prior years before last year. So, we continue to expect that and as Victor said we’re cautiously optimistic that the fourth quarter will be fantastic for us but at the moment we're going to stick with our guidance.

Great, thanks for the color. Appreciate it.

[Operator Instructions] And your next question comes from the line of George Godfrey, C.L. King.

Good morning. Thank you. Two questions, the first one is on the - Victor as you think about the budgeting and settling the targets for next year, can you share with us what inputs you look at to think about specifically how you come up with your organic growth estimate or what you think it's going to be for '17?

Yes, this is good question. Each subsidiary just like with the Flight Support Group, each subsidiary in HEICO prepares a bottoms-up budget for the operation for the year. And we look at sales estimates, again it varies by companies to what goes into those sales estimate. So, companies that are less parts oriented, don't do a month-by-month, part number by part number and they will estimate on programs and things like that instead but some do go into the level of detail on part-by-part. In any event, they will prepare their sales estimates and then cost estimates throughout the year and margins throughout the year and including details on headcount month-by-month and payroll changes and literally person-by-person because they're not gigantic operations, right, they are typically average size item, or somewhere around 75 people or something like that, some are bigger, some smaller. But they will go down person-by-person and estimate the month and when that - any payroll adjustments would occur and we go through and layer on of course lately around all the SG&A expenses and other estimates and submit that budget to us. And then we sit down with the companies and review the budgets and talk through the various changes and decide if we think that's fair and reasonable and if not, we ask the companies to take a further look at their assumptions and consider adjusting those assumptions. And it's an integrated process and eventually we come up with an estimate that we think is reasonable for the year. And then kind of the top of the level here at HEICO, we look at that and we know our people, we know who tends to be very conservative and blow through their budget every year and we know who tends not to. And so we will make some kind of top level assumptions here. Generally we will build in some level of cushion to account for that and we put that in. And then we have our budgets once they're all aggregated and that totals up the organic growth and of course the acquisitions are not as we talked about are not included in the organic growth.

Understood, that's helpful. Thank you. And just one question for Eric, could you just comment on where we are today versus say six months or year ago on M&A activity and how active you're in talking with potential targets. It seems like it's pretty quiet and the net debt leverage ratio just over 1.5 times, that seems towards the lowest end of what I was thinking be comfortable running with.

Sure George, that's a good question. Last year in the Flight Support Group, we did about five acquisitions or you can say 4.5, because one is rather small bolt-on. And so we were extremely busy and we have had to digest those and they are performing overall quite well and we are very happy with the performance there, outperforming our expectations. And we have been very busy, I would say recently, certainly over the last half year or so looking at a number of acquisitions but again we need to find the companies that are the correct fit for HEICO. That really fit with our culture, fit with our strategy and our business operating model and I think we've got a number that we are looking at now that do fit within that criteria and we are very careful we need to make sure that we - if you will trust but verify and confirm through the due diligence process that the companies are as they had anticipated to be sometimes in - I would say today’s robust M&A environment advisors can be overly optimistic on - if you will on forward projections and sometimes sellers realize that they can't achieve those projections. So we're very thorough on our due diligence there, but we do have a - as you point out from tremendous firepower to be able to make acquisitions. I think we have always been the acquirer of choice that continues to be and I am hopeful that we are able to get some deals done within the next six months. But we are very, very busy in that area now.

George, this is Victor. I would just add the same applies for the ETG and I would also add that we like to get deals done but we are not afraid to not do deals, we are doing the right thing for the company long term, that's our attitude but right now I have to say we are looking at a fair number of companies and it's a pretty robust pipeline in both sides of the business, where those go only time will tell.

Got it. Thank you very much, gentlemen.

And there is no further questions at this time. I would like to turn it back to HEICO for any closing remarks.

This is Larry Mendelson again. I want to thank all of you on this call for your interest in HEICO. We remain available by phone. If you have any other questions, we will be happy to try to respond to them and otherwise we look forward to speaking with you either at one of the conferences in early September. We are going to be in New York. There are three conferences in early September and we are going to be on the call in December for Q4 and final year wrap up. So again thank you all very much. Happy Labor Day to you, and we'll speak soon. That's the end of our call.

Thank you for joining today's conference call. You may now disconnect your line.