Welcome to the HEICO Corporation Third Quarter Fiscal Earnings conference call. My name is Justin and I will be your conference operator for today. Certain statements in today's call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. HEICO 's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including the severity, magnitude, and duration of the COVID-19 pandemic. High-cost liquidity and the amount of and timing of cash generation, lower commercial air travel caused by the COVID-19 pandemic and its aftermath. Airline fleet changes or airline purchasing decisions, which could cause lower demands for our goods and services, product specification costs and requirements, which should cause an increase to our cost to complete contracts. Governmental and regulatory demands, export policies, and restrictions. Reduction in defense, space, or homeland security spending by U.S. and or foreign customers, or a combination from existing and new competitors. Which could reduce sales which could reduce our sales or ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth product development or manufacturing difficulties, which could increase our product development and manufacturing costs and sales. Our ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest foreign currencies exchange and income tax rates, economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, and telecommunication and electronic 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 this call are encouraged to review all of HEICO 's filing with the Security and Exchange Commission, including, but not limited to filing on Form 10-K, Form 10-Q, and Form 8-K. We undertake no obligation to publicly update or advice any forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law. As we begin the call. Now, I turn the call over to Lawrence Mendelson, HEICO 's Chairman and Chief Executive Officer.

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 Third Quarter Fiscal '21 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 beginning my review of the operating result, I'd like to take a moment and recognize all of HEICO 's talented team members for their extraordinarily high performance during the challenging times brought on by COVID-19. The dedication to HEICO's customers and the safety of their fellow team members continues to be exceptional in our opinion. On behalf of our Board of Directors and management, I want to thank each and every member of HEICO 's worldwide team for these efforts and the outstanding results that we are reporting today. I will now summarize the highlights of our third quarter and first 9 months of Fiscal '21. We were very pleased to report consolidated operating income and net sales in the third quarter of fiscal 21 improved 47% and 22% respectively as compared to the Third Quarter of Fiscal 20, which was the Quarter in which our operating results were most negatively affected by the pandemic. Our performance principally reflects quarterly consolidated organic net Sales growth of 17%, as well as the favorable impact from our Fiscal '20 and ' 21 acquisitions. The Flight Support Group reported quarterly increases of 250% and 33%, in operating income and net sales, respectively, as compared to the third quarter of Fiscal '20. These substantial increases principally reflect increased demand for the…

Thank you very much. I'd like to start out by first thanking all of HEICO's team members for their incredible dedication, and in particular, their sacrifice in 2020. I think our shareholders and the community at large expect phenomenal results from HEICO. And they just automatically think that we're able to pump out these incredible results quarter-after-quarter. But the truth is that all of the businesses that we're in are very competitive businesses. And our people have to work incredibly hard. And last year, they went through tremendous sacrifices, tremendous personal sacrifices. And in order to help HEICO and looking at the results that we see now today, I believe is the result of that hard work and dedication. So I just personally thank all of the HEICO team members for everything that they've done to make our Company what it is today. Moving on to the prepared remarks, the Flight Support Group 's net sales increased 33% to 237.1 million in the third quarter of Fiscal '21, up from 178.2 million in the third quarter of Fiscal '20. The net sales increase in the third quarter of Fiscal '21, is principally from organic growth of 32%. The organic growth is mainly attributable to increased demand for commercial aerospace products across all of our product lines. The Flight Support Group's net sales were 666.7 million in the first 9 months of Fiscal '21 as compared to 731.2 million in the first 9 months of Fiscal '20. The net sales decreased in the first 9 months of Fiscal '21 is principally organic and reflects lower demand for the majority of our commercial aerospace products and services resulting from a decline in global commercial air travel attributable to the pandemic. The Flight Support Group's operating income increased 250% to 42.1 million in…

Eric, thank you. And first, let me thank all of HEICO 's remarkably talented and dedicated team members who delivered yet again, on behalf of each other, on behalf of our customers and on behalf of our fellow shareholders this quarter, as you did throughout 2020 and throughout this year, and frankly before. And as you do in both good times and in challenging times, we are truly grateful for what you do and how you do it. And thank you to all of our team members. The Electronic Technologies Group's net sales increased 14% to $239.5 million in the third quarter of Fiscal '21, up from $210.9 million in the third quarter of Fiscal '20. The net sales increase in the third quarter of Fiscal '21 principally resulted from our Fiscal '20 and '21 acquisitions, as well as organic growth of 5%. The organic growth principally reflects increased demand from our other electronic, defense, medical, and commercial aerospace products partially offset by decreased commercial space net sales. As we've historically noted, commercial space revenue recognitions tends to be uneven through the quarters due to factors like 606 accounting and periodic shifting of production resources between commercial and defense space work, which occurred this quarter and saw a total space activity overall in line with our expectations. Importantly, our space orders remain healthy. The Electronic Technologies Group's net sales increased 11% to a record $706.2 million in the first 9 months of Fiscal '21, up from $638.3 million in the first 9 months of Fiscal '20. The net sales increase in the first 9 months of Fiscal '21, principally reflects our Fiscal '20 and ' 21 acquisitions, as well as organic growth of 2%. The organic growth principally reflects decreased demand for our other electronic and defense products, partially offset…

Thank you Victor and Eric. Moving on to earnings per share, consolidated net income per diluted share increased 40% to $0.56 in the third quarter of Fiscal '21, and that was up from $0.40 in the third quarter of Fiscal 20. The increase in the third quarter of Fiscal '21 principally reflects previously mentioned higher operating income at both operating segments. Consolidated net income per diluted share was a $1.58 in the first nine months of fiscal 21, and that compared to a $1.83 in the first 9 months of Fiscal '20. The decrease in the first 9 months of Fiscal '21 principally reflects higher income tax expense and lower operating income of Flight Support, partially offset by higher operating income of the Electronic Technologies Group. Depreciation and amortization expense totaled 22.9 million in the third quarter of Fiscal '21, and that was up slightly from 21.9 million in the third quarter of Fiscal '20 and totaled 68.8 million in the first 9 months of Fiscal '21. And that was up from 65.2 million in the first 9 months of Fiscal '20. The increase in the third quarter and first 9 months of Fiscal '21 principally reflect the incremental impact from our Fiscal '20 and '21 acquisitions. Research and development expense increased to $18 million or 3.8% of net sales in the third quarter of Fiscal '21. And that was up from 15.1 million, or 3.9% of net sales in the third quarter of Fiscal '20. R&D expense increased to 52.2 million or 3.8% of net sales in the first 9 months of Fiscal '21. And that was up from 49 million or 3.6% of net sales in the first 9 months of Fiscal '20. As usual, significant ongoing new product development efforts are continuing at both ETG and Flight…

At this time, I would like to remind everyone We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Larry Solow from CJS Securities. Your line is open, please ask your question.

Great. Good morning, guys. And thanks for taking the questions. First question, Larry, and perhaps for you, just on a more macro temperature check. It sounds like -- obviously, we realize the very fluid situation with COVID and all. But just, what are you guys seeing? Obviously, a nice large improvement in commercial travel in the first 6 months of the year, and now we're stabilizing down about 20%. Has this driven any changes in customer behavior order trends? And more importantly, the path to full recovery seems like it's still a bit up in the air, but do you still think you can get back to '19 levels, sometime perhaps towards the end of calendar '22? It's --- particularly in FSG and on commercial aviation?

So, Larry, that's a very difficult question to ask. It's like asking a fortune-teller what's in my future?

Right.

So, it's so difficult because of things like the new Delta version of COVID pop-up. All of a sudden, we were on the street. Restaurants are pulling back. The people are saying, well -- hesitating and so forth. My personal opinion is that we will continue to grow through the remainder of '20 -- I'm talking about Flight Support.

Yeah, of course.

We'll grow through the remainder of '21 and certainly into '22. Again, we're cautious because what is going to happen, will the other shoe drop? Assuming that we don't have another shoe dropping and another version of COVID or some other unusual event, or the Afghanis attacking Mr. Biden or something, but yes, assuming things are kind of normal, I see continued strength and growth in our markets. But, to go out on a limb and predict it and tell shareholders we're definitely going to do it, that's just not been our style. We don't hype the stocks. We try our best, but I have a very positive outlook. I can't -- based upon what I see, I feel very positive. But could something else happen? Yes. I'd like Eric to add to that if you don't mind.

Absolutely.

Hi, Larry. Good morning --

Hi

It's Eric, Great question and something we spend a lot of time talking about. I spent a lot of the last 2 weeks with our aftermarket leadership and sales and marketing folks, understanding what they're seeing and what their plans are. And I can tell you that they are all very optimistic. And I believe that we -- not I believe. We are continuing to take market share. We're doing very well in all of our businesses in the aftermarket. I feel that since we were able to hang on to a greater percentage of our people than our competitors, that we are very well positioned for the recovery. Specifically, to answer your question, across-the-board, no. We have not seen a drop in business as a result of the Delta variant thus far. The Americas, in general, have been strong. Europe never saw really the recovery. In Asia, ex-China hasn't seen the recovery. I think that we've got a lot of wind to our backs. And I think of a lot of increased demand to help drive the -- continue to drive the sales higher. Having said that, if you look at what's going on with the Delta variant in the United States, I think it's inevitable that there will be a little bit of a pullback here. I think people are continuing to travel for personal travel as well as for business meetings. I think where travel is being clipped, is in larger conventions.

Right.

Larger group meetings. So, I don't -- we haven't seen it, but it would be logical for it to temper back a little bit. Of course, there's normally a little bit of a Fall pullback anyway. But again, since we haven't seen the rebound in Europe nor Asia, ex-China, I think that we've got a lot of very good potential there. So, I remain very optimistic. As far as when do we get back to the ' 19 levels? I certainly hope that by the end of '22, we are back at the '19 levels. However, that is not to say that '22 will equal '19, because it's going to take a while to get back to those levels. I think the consensus in the industry is that 2023 should overall, for full-year, be equal to '19. And remember, our 2023 starts November 1st of 2022. I'm pretty optimistic about how we're doing. We feel good notwithstanding the recent news flow.

Right. No, I really appreciate that color. And maybe just switching gears real fast. Quick question for Victor. I know you guys don't give specifics on particular acquisitions, but it does look like the Ridge Engineering and Bechdon group, I guess that's two separate purchases is combined. Looks like it's a little bit larger than some of your smaller ones to date. I guess that's part A of the question and Part B, it looks like there -- you don't have manufacturing expertise, so perhaps there are some cross-selling opportunities using their technologies or their expertise or capabilities as you look at other businesses as well. Is that true?

Well, Larry, this is Victor. Of course, that, as you know, is part of the Flight Support Group being a mechanical manufacturing business and metals-based manufacturing business. And there is some opportunity for cross-selling with some of the things that the ETG does. I don't think it's going to be a tremendous needle mover. But there is some opportunity there, and we'll explore those as we get a little further down the road and a little more time passes.

Got it. Okay. Great. Thank you, guys. Appreciate it.

You're welcome.

Thanks, Larry.

Your next question comes from the line of Josh Sullivan. Your line is open. Please ask your question.

Hey, good morning.

Morning, Josh.

HEICO has always been a -- thought of as a leader in the P$A Market, but curious of your thoughts on the DER market. Is Camtronics a part of any larger opportunity in DER or just -- what are some of the dynamics you're seeing in that market?

Yeah. Josh, that's a great question. I think something that a lot of people often overlook. But yes, HEICO, I'd -- we believe is the largest independent repair and overhaul group focusing on the components market in the world. And we say independent, mean, non - OEM, non-airline, non-government affiliated. And a key part of that strategy is using the DER repairs. And when we combine that with the opportunity to use certain PMA parts, it results in an unbeatable combination. I can tell you that -- we operate a very decentralized business where we've got businesses that focus on a specific product and Camtronics is particularly good in a number of the products that it does, and it does have DERs. I think we've got the ability to develop more DERs. And I think we're going to do very well because we offer it as a full suite. It's not just walking in and offering a single DER. It's offering lots of different DERs. So yes, I think that's been an important part of the strategy, along with the PMA.

Okay. And then just thinking about the bad debt expense exposure at this point. Last year, obviously was a very tough time for the airlines. But as the government support tapers off going forward, what do you think about your airline partner's financial position, just broadly speaking? Do you think that the bad debt expenses are behind us, or do you think that we should just be cognizant going forward?

I think the stress is behind us, frankly. I feel good about where they are. And I can tell you looking at some of the older patterns and some of the stuff that they're ordering from us that they never bought from us before leads me to believe that HEICO is going to continue to take market share as they've got to focus on cost. And that HEICO has treated them very well through these crises. But I really think the airline distress is behind us.

Okay. Thank you.

Thank you.

Your next question comes from the line of Peter Arment from Baird. Your line is open. Please ask your question.

Good morning, Larry, Victor, Carlos.

Good morning.

Eric, maybe just to start with you on, can you maybe just give us a little more color on what you just mentioned on order rates at FSG regarding that you were early on calling the end of the destocking. And we saw surprisingly 16% sequential growth last quarter, but just 3% this quarter. Maybe you could talk maybe a little bit about the cadence of what you're seeing.

Sure. I mentioned in the call -- in the second quarter call 3 months ago that the 16% really surprised us and we were frankly shocked to see it so strong. And I cautioned everybody at that time that I didn't see that continuing. And sure enough, that didn't continue at that 16% rate. But look, I'm very happy that we held the ground. When you go up 16%, often you can cut back, trim back. I was happy that we were able to post 3% above what was off the chart numbers. In hindsight, would it have looked good to have 10% growth and then 10% growth? Yes, but that's not how we manage it. I can tell the airlines with whom we deal are very optimistic and I've never spoken to our sales force before and seeing them so positive and optimistic. Now, part of that is due to us gaining market share in the PMA and the DER, as well as the distribution area. So, HEICO is doing very well because we were financially strong through the crisis. We held on to a much larger percentage of our workforce than our competitors. So, I think we're starting to reap those benefits. It's very hard to figure out quarter-over-quarter increases. Again, the other -- the focus and -- the other point I want to make is that our businesses are focused on profitability. And if you see the profitability in the margin, it far outpaced the sales increase. We evaluate businesses on cash flow and profitability. Sales are sort of irrelevant. As a matter of fact, if you have a lot of sales and not profitability, that's not a good thing at HEICO. We don't want to tie up capital in that. We'd rather invest capital in something that's going to produce income. I'm overjoyed, frankly, with the earnings that we've been able to put out while delivering very good savings to the customers. And I think that in North America, it's -- there's got to be some impact on flight schedules, but I think it's going to be at the margins. And again, Europe and Asia, ex-China, haven't experienced the return. So, I think we've got far more upside in those areas than we do in some little potential risk in the United States. I got to say our -- the major operators in the United States are all without exception, very optimistic. And they want to make sure that they are going to get products and everybody is nervous about supply chain shortages. There were articles in the Journal today about China not being able to -- not that we get our parts from China, but not being able to get enough labor for their factories, as well as COVID in Vietnam and all sorts of supply chain challenges. So, I think they're going to be pretty aggressive and leave those parts unordered, so I'm -- we're feeling good.

Yeah. So just to follow up on that. So, we're not really seeing a restocking yet on the shelves yet for -- it's -- in terms of the transition from out of the end of the destocking. You're just -- you're in a more normalized rate matching overall flight activity. We haven't seen a restocking of parts yet.

Yeah. I would say that is correct. But I think in hindsight, some of the second quarter may have been a little bit of restocking for certain customers. No, there's not wholesale restocking going on. But in the Americas, the -- in North America, I think the airlines want to make sure that they've got enough parts on the shelf. Maybe there has been a little bit -- there was a little bit of that in the second quarter, but not to the full extent that we would anticipate.

Okay. Understood. And just a follow-up, a quick one, Carlos. Just the cash generation continues to be really impressive. Maybe you could just talk a little bit about expectations around the working Capital dynamic from here. Is there a potential for a little bit of a headwind as demand starts to pick up, as we go into next year, building any inventory or anything?

Peter, thanks for the question. I was feeling lonely over there in the corner. Working Capital management on our subsidiaries is fantastic and I expect that to continue. We went through what I'll call challenging times over the last year dealing with COVID and the focus by our subsidiaries on cost management without penalizing the labor force. Just looking for efficiencies and doing the leanest things they could, has been extraordinary. And I think that will continue, so I don't expect big changes in the pattern you're seeing. Now, as sales pick up, we will have an investment in receivables. That will happen. I think our inventory is at the right levels right now. The only change I could see is an investment in receivables. But I do anticipate capitals to be strong for this year.

I appreciate all the colors. Thanks.

Bye, Peter.

Your next question comes from the line of Michael Ciarmolli from Trust Securities. Your line is open. Please ask your question.

Hey, good morning, guys. Thanks for taking the questions here. I don't know, Eric or Carlos, maybe just to put a finer point on this. This quarter is normally a little bit slower in general, coming off the heavy flying season, we've seen this pick up in Delta here, and I guess you're not going to get the guidance, but if I look at FSG sequential growth, streets got you guys at 13% into the fourth quarter. Given what we're seeing, the softer, as you already telegraphed last quarter, Eric, that 16 wasn't sustainable, but is that too heavy, or do you guys have orders and confirmation that you'll see a step-up in sequential growth into this current quarter we're in now?

Michael, this is Carlos. I'll answer the first part of that. Maybe Eric will have the follow-up. Because of the uncertainties we're seeing in the marketplace, and it's real; stops, starts, the trend is there. But we have -- we had challenges of the order patterns as the Delta virus variant kicked off. That's why we didn't give guidance. I don't want to comment on 13%, 20%, 5%. I -- we really don't know. I can tell you that I think in general, the sales will continue to trend up. We've said consistently for quite some time that we think it's more of a linear pattern upward. That's why we were surprised in Q2 at the growth in FSG. But I think we'll continue this pace back up to ' 19 levels towards the end of '22 on a trailing to at the end of the year. And I think that's what people should expect anything above that will be gravy and will make us all happy, but we're not expecting lumpiness in the patterns quarter by quarter, more of just a linear progression up.

Yes. I think that's a great and very accurate response, Carlos. The only thing that I would add, and also on what you're bringing up here as well as some of the prior questions, is that it's very difficult to predict when the restocking is going to occur. We don't believe that we've seen much restocking to date because our AOG orders have been fairly strong. If people are needing parts right away, they don't have them on the shelf. That leads me to believe that there is a lot of pent-up demand yet to come. And I keep mentioning from Europe and Asia ex-China. So, but Mike, it's really hard to predict when it's going to hit. As you know, we get roughly 70% of our orders in the monthly shipment. So, I really don't have -- we don't have visibility to be able to see that. We know that we're winning market share. We know we're developing products. We know that our people are more pumped up than ever. And so, I think that we're going to do exceptionally well and people will continue to fly. I'm sure you've -- you've been flying. Everyone's itching to fly And -- but when that occurs is very hard to predict.

Got it.

Yes.

Yes. Got it. That's fair. What about -- are you getting any indications, Eric, either from your people or from airlines? We've been talking about maybe when this restocking happened. But presumably, the bulk of your demand right now coming from narrow-bodies, should we expect, assuming vaccinations continue to happen here and knock-on wood, maybe international travel starts to really recover. Is there an expectation from you guys that maybe we get a little bit of a bow-wave of activity to support some of the widebodies out there in the fleet that presumably are still very much underutilized in terms of daily utilization flight activity as those starts to pick up?

Yeah. I think that will start. But frankly, the wide-body is really going to be more trans-oceanic traffic. And my guess is that recovery is shifted more to the right in probably in getting prepared for next summer, my sense is next summer is going to be very strong. It's interesting when I look at our Asia n facilities, the vaccination rate is somewhere between 90 and 100%. Our people are vaccinated, at least with one shot. And we've been very careful in how we're operating, but we're doing quite well out there. This leads me to believe that there is going to be a big surge in travel. People are going to want to go to Europe, to Asia. They're going to want to come here. I think wide-body come -- the spring is wide-body demand for parts is going to start taking off and it will be delayed just like the narrow-body was, but it's going to be there. So, we feel good about it.

Got it. Okay. Maybe just one last one for Carlos. The FSG operating margins, you know, very strong sequential growth. I think 3% revenue growth, 18% operating growth, great leverage there. Really high sequential, incremental margins. Can that sort of margin expansion continues? Should we be thinking about costs starting to be layered back in, as that top line continues to ramp, or just how should we calibrate ourselves for margin and expansion and cadence going forward?

I think the best way, Michael, for you to look at that is to trend the operating margin up with the revenue growth. We ultimately expect the Flight Support group get back to 20% GAAP operating margins. And I think if you trend that upwards with the model on revenue growth, you're going to be pretty much in line with at least our expectations at this point. As we rebounded, and as I've mentioned in prior calls, the incremental margins can be a little higher than our decrements because you have things like product flying off the shelf as opposed to manufacturing, right? You can get a bigger bang for the incremental dollar than on the downside. And so, we saw that this quarter, but I wouldn't assume massive leaps in our OI margin. I would trend it with sales growth and get your model back to around 20%. And then at that point, I think what will happen is we'll react similarly to how we have in the past. You have this incremental bump ups in the margin as time passes through efficiencies and growth in sales. Does that help?

Got it. Perfect, thanks. Thanks, guys. I'll jump back in the queue.

Your next question comes from the line of Sheila Kahyaoglu. Your line is open, please ask your question.

Good morning, guys. Thank you for the time. I'll start with maybe ETG. Victor, I don't want you to feel left out. So, what's going on in ETG organic growth looks pretty good up by branded on easy comp. But we've seen a lot of suppliers really decelerate in their defense business. So maybe if you could talk about what you're seeing in Defense and Space because I believe that accounts for 60% of ETG sales. What's going on, and should we expect any air pockets or softness?

Hi Sheila, this is Victor. I would say that overall, the business is, as we pointed out in the numbers, it was pretty much firing on just about all cylinders this quarter. That's -- the outlook, I think is pretty healthy. It's -- not every business is as strong as the other businesses. I think we've said over time, we expect the defense to flatten out at the very least, with the budgets. The budget is not resolved as you know, and so we would expect that to be the case going forward. We would expect space to be strong. We think our other markets right now should continue overall to be strong. Of course, that's predicated on what happens in the overall economy and with the viruses. But right now, what we see is general strength and recovery as well in our commercial aviation markets. And when I refer to space, I refer generally to commercial space, but also our defense space. And I think we'll just have to see where defense plays out over time. We tend not to just look quarter-to-quarter, as you know. And in defense, I think we've constructed the business pretty well to avoid the operations tempo, although we're certainly not free from that. And we've always tried to stay more focused on the higher technology realms that are not so much involved with the engagements that our country is involved in and that we're involved in a -- more involved with intelligence, surveillance, reconnaissance, to a certain extent, standoff warfare and things like that. And that generally tends not to be as volatile. Of course, we'll have to see how that plays out, but that's been the strategy.

Okay. No, that's helpful color. And then Larry, for you, your favorite topic. I think you guys raised your dividends, and you also did three acquisitions within FSG over the last few months. What are you seeing in the market, whether it's for M&A or using your balance sheet? And just given recent deals with Meggit and Parker and TransDigm, how do you guys approach -- what is a rational estimate for synergies as a percentage of sales? How do you guys see that, and just your overall thoughts on the market?

Well, I think overall, we are looking at quite a large number of transactions. We're doing due diligence on them. Some of these big transactions, specifically you mentioned the TransDigm and Parker with regard to Meggit, I think that both of them are paying very high prices for that. We looked at -- we model dozens of public companies to see what they might look like combined with HEICO. And they are -- we think they're paying a very high price, but they also feel that they can get great synergies. And I would say that they're both very good companies, and I assume that they know what they're doing. It's probably richer than our blood could stand, but I wish them good luck and success in those acquisitions. We are looking at a large number of companies. We certainly have the balance sheet and the capacity to do large transactions. And our nature is to be more conservative, of course than TransDigm, which you know. And our model is a little bit different than TransDigm but I think we are seeing a lot of opportunities and we're working on it. So, the problem is a lot of private equity and other -- money is very cheap. And people are pushing up. I think there is basic inflation in the M&A world. People are paying very high prices, and we are a little bit conservative on that. And also, because our model is a decentralized model, we don't go in and clean house with acquisition and throw people out of jobs and all that kind of stuff. So again, we have to be a little bit careful in how we do things. But there are enough transactions -- potential transactions out there that will enable us to close on our fair share of what's available. So, I'm cautiously optimistic. I think with us, it will be sort of business as usual. It is harder because we are competing with a lot of people with a lot of cash in their pocket, and it's burning a hole in their pocket. We probably won't be as aggressive as those people. But that is just our style, and it's worked for 31 years. I think we'll continue pretty much the way we are.

Awesome. But thank you for the color.

Okay.

Your next question comes from the line of Gautam Khanna from Cowen. Your line is open. Please ask your question.

Hi. Good morning, guys.

Good morning.

Morning.

Hey, I have a couple of questions. First, at FSG, I was curious about the sequential trend within the quarter. Was the exit rate in July -- sales in July, were they substantially different than that of the preceding 2 months? Were there any fits and starts you saw through the quarter? Anything you could talk about just within the quarter, what the trend flows?

No, not -- Gautam, it's Eric. No, I wouldn't say that we saw any real particular trends within the quarter. Just sort of gradual upward shift. But it's -- no, nothing that really stands out.

Okay. And then within the segment of FSG, we have the 3 major sub-segments. Any major differences between the 3? Specialized products, repairs, and aftermarket parts and services.

Hey, Gautam. This is Carlos, how are you?

Great, thank you.

The repair group was quite strong in Q3, which by the way, we expected. But it performed quite nicely. It had -- it really, really done a good job. Parts and repair were way up and again, we expected that. The -- I don't want to harp on this too much, but the laggard, if you would, the slowest growing part of the segment, was specialty products. And again, we anticipated that the OEM cycle is a little softer than the aftermarket. So, we anticipate that, but it's growing nicely and we're happy with its performance. And you'll see the breakout if you look at our -- will file our quarter on Thursday so you'll be able to see the trend in the sales by those 2 areas. Gautam --

This is Eric. That's why Carlos just pointed out with the specialty products growing the least out of the group, although the smallest percentage, that's why we've got a lot of confidence that when that -- as that recovers, that we're going to have a nice rebound there because we haven't seen that yet. We have -- we've seen some, but not to the full extent.

That makes sense. And then, Victor, I was just curious within the ETG Group, there's -- it's not all defense. It's -- there's Aero-defense, and then there's other industrial markets, medical, whatever. I was curious, anything you could speak about the non-defense, the non - Aero businesses within ETG and how they trended in the quarter, and what visibility looks like in the upcoming quarters? Thank you.

Sure. Hey, Gautam. This is Victor. Those businesses have been very strong and actually gaining momentum throughout the year. And we're seeing strong demand. And they're not without supply chain challenges, in fact. But we have never been one of them just in time inventory companies in our own policies. So, we haven't really had to contend much with those challenges. I anticipate that as the year wears on, we might see some here and there, but we've been able to navigate those very successfully. And that's a sign, frankly, that we might encounter a little more of those in a nice level, that demand is just very, very strong there. And it doesn't seem to be subsiding. And that's across-the-board in the various markets that we serve. It's not just limited to one individual market, let's say. So right now, we're very pleased with how those businesses are proceeding. And we've seen a nice recovery as well in some of the medical products and markets that we serve, that had been affected of course by the pandemic, and an improvement in demand there. And obviously, its procedures were put on hold in the middle or early part of 2020. Those recoveries have been good for us as well. So those feel pretty good for us too.

Okay. Thank you, Victor. And then, Larry, for you. Last one from me. Just wanted to ask about your comments on the Parker people paying high prices and all that. I am curious, are there any larger transactions you guys are looking at or is the pipeline today filled with more of the typical HEICO acquisition profile mid-sized, small-size tuck-ins? Or is there an opportunity here to, while the cycle is still early, go bigger? Is that something you guys are keen to do or? Anything you could say about that would be helpful.

So, the answer is yes, we are looking, as I heard mentioned earlier in this call, we are looking at larger companies. Sometimes, we can't make the numbers work, at least in our decentralized operation, where we don't go in and cut and do those types of things. But we are looking at larger companies and standard companies, and all sized companies. And we run models consistently. Our M&A people, in addition to investment banking people who call us every -- virtually every day to look at this possibility and this possibility. So, we certainly have the financial ability to do large transactions in the multi-billion-dollar size. And our balance sheet is pristine, you know that. And we are trying our very best to -- the idea that we have is not to grow because of size top-line, biggest sales Company but to be the most profitable Company that generates the most cash. So, to us, an acquisition is really all about cash. Yes, earnings per share and so forth. But for example, on these calls, what we haven't focused on is, and I'm sure that many, many people on the call, analysts and investors, focus on cash. I know that because when we have one-on-one conferences and conversations, that's what they talk about. In my opinion, running HEICO, managing HEICO, it's all about what the EBITDA looks like and what is the cash flow looking like. And that's the critical factor. When we make an acquisition, it's all about cash flow return on our investment. Not to become the biggest Company in aerospace or electronics, or anything else. That's what we really focus on it. And we find -- if you really do the arithmetic, we find that on medium-size acquisitions at the right price and the right Company, we've can generate as much or more cash than we can generate on very large companies. So, this is a -- be assured that Carlos, Eric, Victor, me, our M&A guys, we're looking at this virtually 24/7. So again, it's all different sizes, but the bottom line to us is number 1, cash flow to earnings per share.

Because if we have cash flow, we'll have earnings per share. But if we have earnings per share, we might be heavily leveraged and we won't have cash flow. That's a possibility, as you know. We put that all into the model, and we try to figure out what is the best total overall result for HEICO for an acquisition. But yes, we're looking at all sizes.

Thank you, guys.

Your next question comes from the line of Noah Poponak from Goldman Sachs. Your line is open. Please ask your question.

Hi. Good morning, everybody.

Good morning.

Good morning, Noah.

So, in the aerospace aftermarket, I'm hearing you say no major sequential change month-by-month through the quarter. I'm hearing you say that airlines are generally still concerned about not being ready for recovery, as opposed to being incrementally worried about COVID. And I'm hearing you say that you expect 4Q revenue up sequentially and that's with a month under your belt. And then also a period that usually transitions a little bit to business from leisure. And so, I guess, maybe less of a question and more of making sure I have the summary correct because we've heard some other companies say that the exit rate of the June quarter was worse than the entry rate. And suggest that airlines have gone on a little bit of a pause in aftermarket purchasing activity because they are worried about the Delta variant. Just want to confirm that I have it correct that you're not really seeing it that way. That you've seen domestic leisure strong, international business weak, and Delta just keeps it there for the time being. And you're not seeing really incremental weakness that you are concerned about within your aerospace aftermarket business.

Hi, Noah. It's Eric. There's a lot of information in there. But basically, I would agree with what you said with -- just, one little caveat. On the international side, I don't think it's only business. I think it's a lot of leisure travel as well. That international hasn't picked up, so my comment was more overall that I think international has got good potential to go up against number 1. And number 2, Europe hasn't recovered, and Asia ex-China has not recovered.

Correct.

I would say, yes,

But that was all true pre-Delta variant. I guess what I'm saying is, it sounds like your summary is that the Delta variant of COVID-19 has not really significantly changed the trend line in your aerospace aftermarket business for now?

For now, that is correct. I was asked to comment on what I thought would come down the road. And since Europe hasn't recovered, Asia, ex-China hasn't recovered. Of course, the OEM cycle is building, and we've got significant market share gains, which I answered the way that I did. But yes, look and I think it's possible that HEICO does a bit better than other companies because of these various points that we just spoke about. And -- but obviously, it's very difficult to anticipate, specifically what the fourth quarter is going to. Yes, we do have -- you're right. We've got 3.5 weeks under our belt, but I don't have full numbers for August yet. We never know what the subsidiaries are going to do until they post those numbers. So, I won't know until basically September 1st, what the month looks like. And it's very difficult to predict because we've seen -- our guys tend to be fairly conservative. So, the trend tends to be right before the end of the month. They're always way low and they end up coming in higher. Until I see that, I don't know what it is. I would caution against being too aggressive for the fourth quarter because I mentioned the Delta variant. It's obviously not good news for the United States, nor for the rest of the world. But from what we've seen thus far, it's not crippling at all.

Okay. No, that's very helpful. And I recognized I packed a lot into that question there. But the overall overarching summary, I think I understand. Does HEICO have more exposure to what's happening with the parked fleet and aircraft coming back into service? I know you have a, I think, significant-sized structures component repair group business. And maybe there are other exposures there. But in addition to -- usually traffic and parked are linked, but to the extent that aircraft are coming back into the service at a faster clip than traffic or those are just different. Is that meaningful for HEICO?

Yeah. The -- look, I think overall the aftermarket, not only for HEICO but for the industry is obviously, you got to look at 20-something thousand aircraft out there. And by definition, most of those -- the ones that were parked-were basically in need of maintenance. They didn't park the ones that didn't need maintenance. So yes, as demand gets added back, they've got to put money into the fleet. So, I think that is one of the situations that we've seen. However, we do ultimately anticipate a restocking and ultimately, of course, the rest of the world returning to normal. My sense is it's going to be pretty -- those attributes are going to be present over the next year, as well.

Okay. And then just last question. The share gain that you've referred to, any way to quantify that? I mean, how much revenue have you added to the PMA business over the last 18 months from share gain? Or I know it's not just in PMA, but any way to even directionally size what you've accomplished there?

It's hard to -- for me to present what those numbers are because they're occurring in many different areas. And it's difficult to see in the numbers. I mean, yes, we know what we're doing in terms of new products. But also, you got to combine that with the recovery in other markets, you got to look at how additional share gain is going to impact this, going forward. So, it becomes very difficult to identify, to call out.

Part of the problem -- this is Carlos. Part of the problem might be is because we track the share gains by customers. And we certainly don't want to talk about customers on this call, but we're very aware of our market share with each airline globally that we serve. And we are seeing that they're buying more. And they're buying things that, or they're putting in orders for things that they had not bought in before. We believe that that trend that we're seeing is a result of gaining market share from our customer base.

Okay. Fair enough. Thanks very much.

Thank you.

Your next question comes from the line of Louis Raffetto from UBS. Your line is open. Please ask your question.

Hey. Good morning, everybody.

Good morning.

Morning.

Eric, I wanted to circle back with you on the Ridge - Bechdon deal. As you talked about Flight Support getting back to '19 levels by the end of '22, can you -- how much impact does that deal have on that? And sticking with them, I know the deal didn't close till early 4Q. Sorry. I'm guessing we're not going to know what you spent on that until the 10-K or any guidance you can give us on those 2 things just as we think about cash balances and things like that going into the end of the year?

Louis, this is Carlos. We didn't disclose the purchase price because the acquisition relative to our balance sheet was not material. We have a big balance sheet. I wouldn't look at them being a drain on cash or we pay with cash on hand in our -- the beginning of this month. So, if you look at our cash balance, whatever we had sitting around, we usually operate with probably half of what we got on the balance sheet. So, some of that went towards the acquisition.

Okay. Great. Thank you. And then Eric, any impact, I guess, on the top line? You can just help us -- because again, it does seem like it's a bigger deal within FSG than you've done in a while. So, if there's anything.

It's a nice-sized Company. I mean, they've got about 200 people. They are in the manufacturing business and they're really a very outstanding Company. We're really honored to be the home that they've selected for this business. And we think that there were a lot of people who would have coveted buying the Company. And they saw the culture that HEICO has got. And really our long-term commitment and the fact that we don't sell companies and that we just build and grow them. They're going to be embarking on additional growth in terms of more buildings, more equipment. We're very excited about that. We've spoken with major customers and they're extremely well valued. And really the furthest ahead in that space, according to our customers. And so, we're really very, very optimistic that it's going to provide another great avenue for growth. Just good business with really great people. We're very optimistic and it's again a nice adjacent wide space for us. We never did machining or bracing like this, frankly, I'd never seen this elsewhere. What they've been able to pioneer and develop, it started out as a very small Company. And due to the grit and determination of the founders and leaders in the business and all the people, they've been able to do stuff that other people viewed as really impossible. And frankly, I've barely -- I've seen quite a bit of machining in my 31 years at HEICO, and I've never seen anything like Ridge. The machining and the brazing that they do is really very, very close tolerance, very difficult to do. And I don't think anybody else in the world can really do these kinds of products. So, I think it's just a very good opportunity for us, and it's one of the reasons I'm very optimistic about our specialty products business, that we're going to see continued demand as the cycle builds over on the commercial side. And then with these products and some of the other stuff we're doing on the military side while I'm -- why I'm very optimistic on it.

Okay, that's great. Thank you.

Carlos, just another one for you, I guess the corporate cost looks like another quarter of pretty high. Is this a new sustainable level? Anything else -- one time in nature in there, just to be mindful of as we think forward?

I think we had -- the only thing really in the corporate cost center that's up is performance-based comp expense. And I think going into -- the first quarter was like Q2. We had a little bit more -- Q3 was more on the run rate. So, I think what you'll see Louis is if you look for anywhere from 1.8 to 2% of revenues, that's about what our corporate cost center will -- will amount to for any given year. So that's what I'd focus on if you're modeling. But the only there's no unusual stuff that really is just related to hopefully having bonuses this year. Remember, we didn't have any last year, so the comparable to the prior year are low principally related to the performance-based comp being absent in 2020.

Okay. That's right. And just a quick one. Larry, you talked a lot about the M&A, and obviously, you guys have been extremely successful in doing that over the last 30 years. I guess maybe the question is, has that landscape changed at all, given all this new competition that you're seeing? And what people are willing to pay and get and then combine that with your conservative nature?

Well, as I indicated earlier, people are paying much higher prices because there is an inflation in our A, in our economy and you see that, just read the newspaper and they tell you that prices of goods and services are going up to number 1. And the M&A world is seeing the same thing, low-interest rates, just a plethora of money. And the definition of inflation is more money chasing the same amount of goods. Obviously, we are getting inflation in acquisition. The question is, can we invest HEICO's money wisely to get the type of return that makes sense? That becomes more difficult when you're competing with somebody who is willing to pay 14 times EBITDA. And it takes you 20, 25 years to repay your investment. So, we look at things as a return, as you would as a wise investor, which you are, as a return on investment. And we like to get our money back within, say, 10 years. And our model is that -- and we pay fair prices, will pay 8 times, 10 times EBITDA. And -- but we want to see the cash flow coming back so that if we mentally say we pay whatever we pay for it, by the time we're into the fourth or fifth year of owning a Company, we have received enough cashback to make that Company costing us in our portfolio, say 4x or 5x EBITDA. It becomes a no-brainer. And that has been our strategy. But if we have to pay prices that take us 20 years to do that, all of a sudden, we wind up going to the banks and getting heavily indebted, which we don't -- again, our strategy is to be relatively low leverage. And we can't do that if it…

That's great. I really appreciate all the color, Larry.

There is no further question at this time you may continue.

I do want to thank the people that have turned into this conference and shown interest in HEICO. We appreciate your interest and your support over the years. As you all know, Carlos, Eric, Victor, myself we're available. If you call us, email us, we'll discuss if you have questions that we can answer without running into problems and SEC problems, disclosure problems. We'll be very happy to discuss things. Anything that we can discuss openly, we'll be happy to. Our doors and telephones are open to you. And we welcome any call that you may want to make. We will talk to you. I guess the fourth quarter, we don't report until the middle towards the end of December, probably in the middle of December. So, we look forward to speaking with you at that time. And in the meantime, let us know if you have any questions, but again, thank you very much. And this ends our formal call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.