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Welcome to the HEICO Corporation Fourth Quarter 2024 Financial Results Call. My name is Samara, and I will be your operator for today's call. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include the severity, magnitude and duration of public health threats, such as the COVID-19 pandemic; HEICO's liquidity and the amount and timing of cash generation; lower commercial air travel, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; 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 US and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth; product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales; cybersecurity events or other disruptions of our information technology systems could adversely affect our business; our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals and achieve operating synergies from acquired businesses; customer credit risk, interest, foreign currency exchange and income tax rates, and economic conditions including the effects of inflation, within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues.
Parties 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 statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. I now turn the call over to Laurans Mendelson, HEICO's Chairman and Chief Executive Officer. And Mr. Mendelson, please go ahead.
Thank you, and good morning to everyone on this call. We thank you for joining us, and we welcome you to this HEICO Fourth Quarter Fiscal '24 Earnings Announcement Teleconference. I'm Larry Mendelson, Chairman and CEO of HEICO Corporation. I am 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. Now, before discussing our record operating results, I want to sincerely thank HEICO's talented team members for their exceptional contribution to our success. Your dedication to exceeding customer expectations and achieving operational excellence has driven outstanding results and reinforces my confidence in HEICO's future. Over the past several years, we have achieved extraordinary growth in commercial aviation, emerging stronger than ever from a very challenging period in the aerospace industry.
Our team members' resilience and adaptability during this time of rapid recovery and expansion have been remarkable. Equally commendable is the agility shown by our recent acquisitions, which have seamlessly integrated into our operations and enhanced our collective success. I'm also encouraged by our progress in expanding our presence in key markets such as defense and space. These sectors are critical to long-term strategy, and our team members' commitment to delivering innovative, reliable and best-cost solutions has strengthened HEICO's reputation as a trusted partner. This focus for us is for continued growth and success across diverse markets. I'll now summarize the highlights of our fourth quarter fiscal '24 record results. Consolidated operating income and net sales in the fourth quarter of fiscal '24 represent record results for HEICO and improved by 15% and 8%, respectively, as compared to the fourth quarter of fiscal '23.
Consolidated net income increased 35% to a record $139.7 million, or $0.99 per diluted share in the fourth quarter of fiscal '24, and that was up from a $103.4 million, or $0.74 per diluted share in the fourth quarter of fiscal '23. The Flight Support Group set all-time quarterly net sales and operating income records in the fourth quarter of fiscal '24, improving 15% and 35%, respectively, over the fourth quarter of fiscal '23. The increases principally reflect strong 12% organic growth, mainly attributable to increased demand for Flight Support Group's commercial aviation products and services, as well as the impact from our profitable fiscal '23 and '24 acquisitions. Consolidated EBITDA increased 13% to $264 million in the fourth quarter of fiscal '24, and that was up from $234.2 million in the fourth quarter of fiscal '23. Our net debt to EBITDA ratio was 2.06 times as of October 31, '24, and that was down from 3.04 times as of October 31, '23.
Our excellent operating results have allowed us to early achieve the forecast we made a year ago, that our net debt to EBITDA ratio would return to a historical level of about 2 times within roughly one year to 18 months following the Wencor acquisition, and that excluded the impact of any additional acquisitions. Our acquisition pipeline is extremely robust with opportunities in both Flight Support and ETG, and we intend to follow our time-tested strategy of opportunistic acquisitions that continue to expand the cash-generating ability of HEICO. Cash flow provided by our operating activities increased 39% to $205.6 million in the fourth quarter of fiscal '24, and that was up from $148.4 million in the fourth quarter of fiscal '23. Yesterday, HEICO's Board of Directors declared an $0.11 per share cash dividend payable in January 2025, and this represents our 93rd consecutive dividend, and this reflects their continued confidence in the strong cash flow generation of HEICO.
Now, let me talk about acquisition activity. Over the past few months, our ETG Group made several strategic acquisitions, one, acquiring 70% of SVM Private Limited in November '24, they acquired 87.9% of Mid Continent Controls in October '24, and they acquired 92.5% of Marway Power Solutions in September 2024. In addition, in August '24, our Flight Support Group acquired the Aerial Delivery and Descent Devices division of Capewell Aerial Systems. All of these acquisitions were funded by using cash provided by operating activities, except for Capewell, which was principally funded using proceeds from our revolving credit facility. We expect each of these acquisitions to be accretive to our earnings within the following year of acquisition. At this time, I would like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group, and he will discuss the fourth quarter results of the Flight Support Group.
Thank you very much. The Flight Support Group's net sales increased 15% to a record $691.8 million in the fourth quarter of fiscal '24, up from $601.7 million in the fourth quarter of fiscal '23. The net sales increase reflects the impact from our fiscal '23 and '24 acquisitions and very strong 12% organic growth. The organic net sales growth mainly reflects increased demands across all of our product lines. The Wencor operations continue to exceed our expectations, and we are convinced this was an excellent acquisition for HEICO. Our customers continue to find great value in our larger aftermarket product offerings for their aerospace parts and component repair and overhaul needs, which has translated into excellent growth opportunities and success for both our legacy businesses and Wencor. We continue to operate Wencor as a standalone business operation. I have defined our strategy as cooperation, capabilities and consistency without consolidation.
The sales, earnings and margins prove this was the perfect strategy. As I have mentioned before, we continue to make good progress working together in serving our customers in a combined seamless fashion. Some examples of how we are working together include, one, utilization of all HEICO and Wencor PMAs and DERs at all repair stations; two, commercial and defense aftermarket sales cooperation; three, Wencor's e-commerce platform lists all HEICO non-competitive PMAs; four, Wencor is utilizing HEICO's manufacturing base to quote many new products; five, engineering and regulatory cooperation; six, sharing our best-in-class vendors; and seven, various back office synergies such as insurance, payroll, retirement benefits, and export compliance, that will help offset additional regulatory compliance costs, such as SOX and our FAA, ODA. In addition, the FSG's defense sales continue to grow and offer an excellent opportunity.
Many people have asked us what the US presidential administration change will mean for HEICO. In short, we are very excited about it. Whether it's the chance to sell more of our much lower cost alternative aircraft replacement parts to save the government and taxpayers significant money or other opportunities, the possibilities are many. HEICO has always been about finding cost savings or best cost solutions for our customers, whether they're defense or commercial customers, and not about getting the highest price out of them. Another example of the opportunity set is the components we make for missile defense systems, which is a strong and growing business for us. Missile defenses are increasingly important to the United States and our allies, with sales of these products growing dramatically amidst what is effectively a shortage of defense missiles and a very large backlog stretching over years.
We expect meaningful growth from this existing backlog alone. Moving on to operating income. The Flight Support Group's operating income increased 35% to $154.5 million in the fourth quarter of fiscal '24, up from $114.6 million in the fourth quarter of fiscal '23. The operating income increase principally reflects the previously mentioned net sales growth, a decrease in acquisition costs, and an improved gross margin. The improved gross profit margin principally reflects higher net sales within our aftermarket parts and repair and overhaul parts and services product lines. The Flight Support Group's operating margin improved to 22.3% in the fourth quarter of fiscal '24, up from 19% in the fourth quarter of fiscal '23. Given that acquisition-related intangible amortization expense consumed approximately 270 basis points of our operating margin in the fourth quarter of fiscal '24, the FSG's cash margin before amortization, or what we call EBITDA, and the way we measure our businesses internally, was approximately 25.0%, which has been consistently excellent during 2024, and is 300 basis points higher than the comparable FSG cash margin of 22% in the fourth quarter of fiscal '23.
I am extremely pleased with these results. The increased operating margin principally reflects the previously mentioned lower acquisition costs and improved gross profit margin, as well as a higher level of SG&A efficiencies resulting from the previously mentioned net sales growth. Now I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the fourth quarter results of the Electronic Technologies Group.
Thank you, Eric. The Electronic Technologies Group's net sales were $336.2 million in the fourth quarter of fiscal '24, as compared to $342.5 million in the fourth quarter of fiscal '23. The net sales decrease in the fourth quarter principally reflects lower defense and other electronics net sales, partially offset by increased space products net sales and the impact from our fiscal '24 acquisitions. This is in line with our expectations, as we've commented on earnings calls over the past few quarters, and is consistent with inventory destocking of some customers, particularly those in the non-aerospace and defense markets. Our defense sales growth was nicely healthy in the fiscal '24 year, though this growth varied highly by quarter, which, as you know, has historically been the case, and we anticipate the ETG's quarterly defense sales volatility will continue, but the overall trend remains positive.
As expected, other electronic net sales were lower during the fourth quarter of fiscal '24 compared to the fourth quarter of fiscal '23 due to customer restocking. The low single-digit organic net sales decline was a much lower decline than in prior quarters, and I believe recent better order flow and backlog indicate the destocking trends are improving. I continue to expect a return to growth in these and other electronic end markets and businesses during the first half of fiscal ‘25. The ETG's fourth quarter record backlog and strong overall orders support our optimism, and as the non-A&D markets improve, we continue to anticipate growth into our next fiscal year. The Electronic Technologies Group's operating income was $81.8 million in the fourth quarter of fiscal ‘24, as compared to $86.4 million in the fourth quarter of fiscal ‘23. The operating income change principally reflects a less favorable gross profit margin, mainly from the previously mentioned decreased defense and other electronics net sales, partially offset by the previously mentioned increased space products and net sales.
The Electronic Technologies Group’s operating margin was 24.3% in the fourth quarter of fiscal '24 as compared to 25.2% in the fourth quarter of fiscal '23. Importantly, before acquisition-related intangibles amortization expense, our operating margin was above 28%, as intangibles amortization consumes around 400 basis points of our margin. Now that's how we judge our businesses as that most closely correlates to cash. So, on what we think of as a true operating basis, these are excellent margins, and we are very pleased with it. The operating margin change principally reflects the previously mentioned less favorable gross profit margin and the lower level of SG&A efficiencies. I turn the call back over to Larry Mendelson. Thank you.
Victor, thank you. Now as for the outlook, as we look ahead to fiscal '25, we do anticipate net sales growth in both light support and electronic technologies, driven primarily by organic growth, supported by strong demand for the majority of our products. In addition, we plan to drive growth through our recently completed acquisitions while positioning ourselves to capitalize on potential opportunities from future acquisitions and to provide new cost savings and best cost opportunities to our government in the new administration's efficiency efforts. Our priorities include continued strong new product and service development, further expanding market penetration, and maintaining our financial strength and flexibility, all with a strong emphasis on delivering long-term value to our shareholders. In closing, I would like to reiterate my heartfelt appreciation to our exceptional team members for their steadfast support and commitment to HEICO. Our strategy of cultivating a diverse portfolio of outstanding businesses continues to yield positive results for our shareholders. With strong key markets, fiscal '25 is poised to be another successful year. We thank you for your continued confidence in HEICO. And as I've shared before, I remain highly positive about HEICO's future. Thank you, all. And now, I will turn the call over to the operator for questions.
分析師問答
And we'll take our first question from Larry Solow with CJS Securities.
Good morning. Congratulations on another successful quarter and year. My first question is for Eric regarding the Wencor acquisition. It seems like things are progressing well. I'm curious if, looking ahead, there are still opportunities to achieve additional revenue synergies or other positive surprises that could be explored now that you've had it for over a year.
Good morning, Larry, and thank you for your question. We're very pleased with the Wencor acquisition, which has been incredibly successful and has surpassed our expectations. Firstly, the people are exceptional and align well with the HEICO culture. The companies share similarities, and their businesses are collaborating effectively. Currently, all of our aftermarket operations are experiencing record performance, and they are focused on fulfilling their backlogs and developing new products. Because of this, we've allowed them to operate independently for the time being. I believe there’s potential for further collaboration to present a broader offering to customers. However, given the outstanding results of 12% organic growth and 13% growth in the aftermarket, which exceed everyone’s predictions, we are very satisfied with this outcome. We believe additional opportunities exist, and our teams are closely working together in parts and repair to capitalize on these.
We have successfully integrated HEICO and Wencor PMAs, as well as HEICO and Wencor DER repairs, allowing our repair stations to concentrate on specific units and improve cost efficiency and customer service. We have achieved significant success in this regard and expect this to continue. Overall, I believe Wencor will continue to provide ongoing benefits, not only because of its own merits but also due to the synergy with HEICO's legacy businesses.
Got it. And, Eric, you mentioned that you touched on it briefly just on your opportunities maybe increasing on the military side of the business under the new administration, whether it be through DOGE or whatever, it just does seem like there are a lot of opportunities solely on the military side, right, on the government side. Just any more color there? Is that something we should look forward to near term? Is that more of a mid to longer-term opportunity? I know you've always been kind of focused, obviously, getting more into the military aircraft side, I guess, right? Where I think there's not much on the PMA side there. So, any more color there would be great.
That's a great question, and we are extremely excited about this opportunity. This is real simple low-hanging fruit. I mean DOGE is something I think everybody in the country realizes that we've got to spend our dollars more wisely, and HEICO offers various solutions without getting into the specifics because we have our competitors on the call and I welcome them to it, but needless to say, I think there is a tremendous amount of low-hanging fruit. HEICO was working on all of this before the election. And so we were very hopeful that there would be a number of breakthroughs. We are still hopeful of that. And DOGE just pours more fuel on the fire. When you look at the budget deficit and the amount of money that has to be cut, there are tremendous cost savings opportunities. And we think that it's not only cost, but there's also, and without, I have to be very careful because of course I don't want to provide a roadmap to our competitors, but there are a number of areas whereby, in particular, in the development of new products where HEICO can offer increased quality and, by the way, that's not just the tagline, that's proven and through various rig tests, increased quality, better development timelines, and lower cost.
So I think DOGE is going to be outstanding for us. Now, having said that, you asked is this going to be short, medium, or long term, I think it's going to be more medium-term. I mean in the short term the government has its money committed, so that's going to be what it is. But I do feel that this is just additional clarity and legs for HEICO as we move forward. But I expect the opportunities to be very, very substantial because it's just not only about price.
I appreciate the information shared. I have one last question for Carlos regarding margins. While I understand you don't provide specific guidance, could you give us a general outlook for the upcoming year? FSG has been quite stable in fiscal 2024, and ETG appears to be more dependent on the mix. What are your thoughts as we approach fiscal 2025? Thank you.
I think, as we look at the Flight Support Group, it's performing as expected. We're posting between 23% and 24% operating margins pretty consistently. I think our build on that will be slight improvements as we continue to grow the base of the business. We'll get SG&A leverage on some of our fixed costs, which should be additive to the margin. Very similar to what we did a decade prior to COVID. It'll be small steps. It's not going to be ratcheted moves. And look, in the ETG, I've been saying for a while that when the mix settles out, I would expect that segment on a GAAP basis to come around the 24% margin range. And this quarter I was very pleased to see them exceed that. So, as I look into ‘25, I would expect the business to continue to be lumpy as it always has been. We'll have quarters that are higher and lower. But my baseline is around that 24% range.
Got it. Great. Thanks, Carlos. Appreciate it.
And we'll take our next question from Robert Spingarn with Melius Research.
Good morning. This is Scott Mikus on for Rob Spingarn.
Good morning. Hi, Scott.
Eric, you brought up DOGE and saving money across the federal government. So I'm just wondering, can you quantify right now what percentage of FSG sales are directed to the DoD? And then for programs other than the commercial derivatives like the P-8, have you already started the process of aggregating a list of potential parts that could be sold to the DoD?
Yes. I don't have the exact percentage of FSG sales going to the DoD at hand, but I can share that defense accounts for about a quarter of those sales, which gives you some context. Regarding the opportunity, it extends beyond the areas you mentioned, and we have compiled a list of potential opportunities. While I can't go into specifics during the call, I can say that the opportunities are quite significant. The government should indeed be looking to save these funds.
Okay. Also, regarding Wencor, they previously relied heavily on outside print shops for part manufacturing. You mentioned bringing some of that manufacturing in-house. Can you share where you currently stand in that process and whether there are additional cost savings to be realized by bringing in more of that work?
Absolutely, yeah. We've got very broad manufacturing capabilities at HEICO and we are focusing on Wencor's robust new product development in terms of manufacturing that stuff within various HEICO businesses. There is an opportunity to resource some of the existing business. As long as our vendors treat us right and are fair with us, we're very loyal to them. So they have nothing to worry about. And frankly, the new pipeline is so robust that it will really keep our shops very busy. But again, we think the opportunity is really very, very strong in that area.
Okay. Thanks for taking the questions, and happy holidays.
Thank you, and happy holidays to you too, Scott.
Our next question comes from Ken Herbert with RBC Capital Markets.
Yeah, hi, good morning. Thanks for taking the question. Maybe Eric…
Good morning.
Just to start, as you look at FSG organic growth within the fiscal ’25, I know you're probably not going to get too specific, but is there any reason we shouldn't see double-digit organic growth again across FSG in fiscal 25?
I don't see why you shouldn't expect it. We're quite optimistic about our three revenue categories of parts, repair, and specialty products; all of them are performing well. A double-digit growth expectation seems reasonable. However, it's important to remember that we are only 45 days into the year, so we need to be cautious. During the period between Thanksgiving and the New Year, our volumes can fluctuate based on vendor shipments and customer inventory management. Therefore, I prefer not to use the months of November and December to predict the rest of the year. That said, our internal projections indicate double-digit organic growth within Flight Support, and all three segments are showing strong performance.
Okay. that's very helpful.
This is Carlos. Just keep in mind, while we don't really have seasonality to our business, one thing Eric just pointed out is very important. Our first quarter typically with the holidays tends to be a little lighter than the second, third and fourth quarter. So just keep that in mind when you're thinking about what he just said.
Yeah. And always November and December, I mean, for the 35 years I've been at the company, November and December are historically lower types of months. And January is always the month that drives the first quarter. So of course, we're not yet in January, so it's hard to say. But our internal numbers are very optimistic, and our business heads are extremely optimistic, and frankly, more optimistic than I've ever seen them.
There's been a lot of recent discussion about increased confidence in the execution of new aircraft and engine deliveries from the OEMs. What is your perspective on how quickly fleets could start to modernize if performance improves? How soon do you think spending on older assets will begin to decline as conditions potentially improve in 2025 and 2026 regarding airframe and engine OEM execution?
I have a lot of respect for the airframe and engine manufacturers. They are excellent companies that produce outstanding products. However, they rely heavily on their supply chains, which were significantly disrupted during COVID, as many companies reduced their orders, leading to staffing shortages at suppliers. While there is intent to increase production rates and there has been some marginal progress, there are still many challenges. In visiting our businesses, I observe that the supply chain issues are substantial and persistent. Therefore, I am hesitant to bet on a significant turnaround in supply from OEMs, as I have not seen evidence of that happening. I anticipate that the aftermarket will remain robust. Airlines have been severely affected by deferrals, and they are unlikely to risk not having the necessary legacy assets to maintain their routes and schedules. Thus, I expect them to continue spending wisely while ensuring they have contingency plans, reinforcing my belief that the aftermarket will be strong.
Additionally, with the expected increase in OEM deliveries and an 8% growth in available seat miles projected for 2025 according to IATA, there is a significant opportunity to accommodate the additional seats while keeping older aircraft operational. Based on current order trends, the demand for legacy aircraft remains very strong, and I do not foresee changes in that regard at this time.
Great. Thanks, Eric.
Thank you.
Next question comes from Gautam Khanna with TD Cowen.
Yeah, thanks. Good morning, guys.
Good morning.
I was wondering about the disconnect regarding the Department of Defense and PMA parts and their willingness to consider purchasing those. Do they require OEM parts, or is it more of a cultural issue? I'm curious about what has actually held them back.
They don't have a process. As Carlos says, they don't have a box to check. And what the airlines had to have, and this is what we worked on 35 years ago. When I first went into the airlines and showed them what we could do and said we could develop all these additional stuff, they said to me, that's a great idea, but we can't buy PMA parts. And I said, well, what do you mean, you're already buying our combustion chambers where the fuel and air mix and burn, and we've supplied those parts to you for 20 years with a flawless service record. Why can't you should be able to buy these additional parts and this is the process that we're going to use with the FAA, and frankly, this is the box that you have to check, and that's been immensely successful. So I think the government must change. This cannot be business as usual. The United States cannot continue to irresponsibly run at these budget deficits.
And there is no reason if a part is good enough for the President or the Vice President or senators or representatives or the Secretary of Defense to fly on when they fly commercially, maybe the President doesn't, but everybody else certainly does when they fly commercially, but it can't be used for the DoD. That is nonsense. It's a relic of the past. And I think the government recognizes this is low-hanging fruit. This must change. And frankly, HEICO is the one to do it. And we've got a lot of opportunities. I need to be very careful. And obviously, you know us well, and I don't want to get into details on specifically what, but you don't have to be a rocket scientist to figure out the opportunity here. And we think it's very substantial. And I just want to add that we still think that the current providers are going to continue to do very well. And HEICO provides products to the DoD, and there's still tremendous number of products out there and not everything lends itself to what we can provide. But I think what we can provide is very significant for HEICO.
That makes sense. And just to follow up on that, is the opportunity biggest on the commercial derivatives like Tanker and P-8 with where you may have comparable products on the commercial aircraft that they're built on? Or is there a big opportunity beyond that?
I believe there is a significant opportunity in both areas. For commercial derivatives, this is clearly an obvious choice. They already utilize some of the components, so they aren’t fundamentally against it; they just need to fulfill that requirement. Additionally, there are substantial savings opportunities outside of the commercial derivatives as well. We see very large potential there too. However, I don't want to overpromise, as these impacts are not short-term; they won't affect fiscal 2025. This will take some time, but I think it will be a valuable addition to the positive initiatives we are already implementing.
Yes, certainly. I don't intend to provide a detailed outlook on our subsidiaries. However, I can say that their contributions will not be insignificant, which I hope is helpful. I'm being cautious due to our recent acquisitions, and I prefer not to delve into specific subsidiary details. On the FSG side, Wencor ended this quarter, and we will include Capewell in the inorganic contributions for the first three quarters of next year, but it won't have a significant impact on the segment. In ETG, we also had three recent acquisitions, which I believe will not be material for the quarter. Thus, next year will mainly focus on organic growth.
Great. Thanks for taking the questions, and happy holidays.
Thank you, and happy holidays to you too, Scott.
Our next question comes from Sheila Kahyaoglu with Jefferies.
Good morning, everyone, and thank you for your time. Eric, can we begin with you? I’d like to discuss the organic growth within FSG, which is up 12%, and the various segments of the business. The aftermarket parts have increased by 13%, which is a slight decline from 17% last quarter. What are your thoughts on the trajectory of the parts business as we look towards 2025? Is there still potential for double-digit growth? Additionally, what are you observing regarding demand from MROs compared to airlines?
Well, first of all, good morning, Sheila, and thank you for your questions. We are very optimistic on the continued growth, as I mentioned in all of the segments. In breaking down our organic growth, the parts side definitely had the highest organic growth in 2024. And the area with the lowest organic growth was our specialty products. We think that in 2025, based on backlogs that we already have in the specialty products area that our organic growth is going to accelerate in that area, and it will remain strong double-digits within the parts side. Component repair is probably going to be somewhat in between those. But we also anticipate, I would say strong, I'd say double-digit growth, and I am expecting double-digit growth, frankly, in all three of our disaggregated areas, the parts, component repair, and specialty products.
Okay, could we discuss Wencor for a moment? Can you provide any insights into the revenue synergies? How do their 6,000 SKUs compare to your 15,000? How many have been adopted by your customer base? Additionally, regarding PMA, do you think it will become easier under the new administration?
Yeah. So specifically with regard to Wencor, if you take a look at our organic growth within parts and component repair, you'll see that there's approximately over $60 million, approximately $62 million, of organic growth in the fourth quarter in just parts and repair. That's all organic. And remember, we owned Wencor basically for the pretty much the entire fourth quarter of last year. For HEICO and Wencor to grow $60 million organically, no acquisitions, that's huge and frankly, far beyond anything that I thought was ever possible. We've got incredible teams, incredible leaders in these businesses. I think HEICO's competitive advantage is the way that we have these businesses structured, where we have them as individual business units, each with its own business head and its own leadership team, combined with central sales forces to be able to help them get out there. There is a tremendous amount of unsold potential.
There is so much more help that we can give our customers, and it's just a matter of getting out there or getting in front of them and making sure that they switch from their old legacy solution into a new HEICO solution. So, I expect the future to be very strong, and I'm very encouraged. And when I go out and talk to our folks, so are they. When I look also into the specialty products, when we look at what our backlogs are in these areas, they're tremendous. And now really the challenge is executing and getting product from the vendors out there in the field and subcontractors, because the market is incredibly tight. I don't go to any businesses where they say, yeah, we're all caught up; everything is back to 2019, not a prayer. The labor force has changed. It's very difficult to be able to ramp. And so that's why I'm very bullish in all of our areas. You had asked about the military side.
I think that's just added opportunity, because we've spoken about it, that for years HEICO has operated in that area, and we've had limited success. But as a result of the comments that I made in the prior couple of questions, I think this is really low-hanging fruit for HEICO. And the government got to make cost savings an imperative. The new administration certainly is doing that to a degree that we've never seen before in the history of this country. And it's wise that they do so because, as a country, we're running out of money. And HEICO can provide, again, not only the cost savings as a result of using our parts or using our technology, but also when these systems are developed by the government, there's a tremendous approach that slows things down. And I'm really very excited for DOGE because I think they can accelerate a lot of these processes. And HEICO is going to be, I think, a tremendous beneficiary across our Flight Support as well as our Electronic Technologies business because we are smaller businesses that are competitively focused in various areas, lower cost, higher quality. We can get it done quickly. And if the government wants it fast, I believe it's a huge opportunity for us.
Eric, I'm sorry, I meant more on the commercial side. Do you think the administration makes it easier to PMA commercial parts as well?
Yeah. I think the administrations have always been supportive. The FAA has been frankly outstanding to work with over the last 35 years. I expect that to continue. I don't expect a change there. If you will, the civilian workforce has been great to work with. So I expect everything to continue and no change in our ability to get PMAs. We've gotten more PMAs than ever, and I expect that to continue. So, and you can imagine that over the last four years, we've had tremendous inflation, and things like insurance and benefits and all those things rise. We also have a little noise with FX. As the dollar weakened, we had some FX challenges. But nothing extraordinary. I mean I think the trend going forward, we should continue to be 1.4%, 1.5% of sales in that. As the company grows, we don't have lavish expenditures, but we do need arms and legs to keep track of everything. So that's principally, the zip code we’ll run in.
Great. Thanks for the color.
We'll take our next question from David Strauss with Barclays.
Thanks. Good morning.
Good morning, David.
I wanted to follow up on Noah's question regarding the FSG margin. Eric, you mentioned some relative growth parameters for the various subsegments, including parts, repair, and specialty products. How do you think these relative growth rates will impact the FSG margin in '25?
I think it would help it. So I think it will help. I think the FSG margin story has been, I think, one of the least reported and yet most important things that frankly happened to this company. I mean when we look at what our operating margin basically from roughly 2015 to 2019 was in the 18% to 19% area. Now the operating margin is up in the 22% to 23% area. So we've gone up about 500 basis points over that period of time after making a number of lower-margin acquisitions and going through COVID and all the turmoil that happened there. So I think the HEICO businesses are exceptionally good at just continuing to wring efficiencies out of their operations year by year. We don't make a thing over it but they just increase the amount of volume, they focus on efficiency, they get the cost down. We don't have programs here at the corporate office like HEICO '25 or HEICO '26 or '27 or something like that.
But instead, we just work with them and they do this as a matter, of course. And we just continually grind higher on the operating margin. So I think that there's no change from our perspective in what we want to continue to do. Obviously, it bounces around year-over-year, and it depends on various investments that we have to make. But I would anticipate the operating margins to continue heading north while still providing huge cost savings and benefits to our customers, and doing that not via price but via cost and volume and to what you were alluding to.
Okay. Terrific. Would you expect ETG to grow revenue organically next year in '25? If so, would it be more low single-digit or mid-single-digit? Thanks.
Sure. This is Victor. We anticipate growth in the ETG next year, and we're being cautious by projecting it to be in the lower single-digits range organically, with hopes for better performance through acquisitions. We have some promising acquisitions lined up as well. At this point, considering we've only completed one month of the new fiscal year, I can't say exactly where we'll end up. From discussions with our companies, it seems those who fell slightly short this year are adopting a conservative outlook for next year. While some might refer to this as sandbagging, I believe it's prudent for our companies to be conservative and to plan their spending based on their expected revenue outcomes. At this moment, I am optimistic we might exceed our internal budgets, but I don't want to make any commitments yet. I should also mention that, as has been the case historically in the ETG, our performance will vary throughout the year, with some quarters performing better than others. This variation will be driven by factors such as customer shipping requests and production rates, and I expect this trend to persist across both sales and income, as well as by end market.
Terrific. Thanks very much and happy holidays.
Thank you.
We'll take our next question from Ron Epstein with Bank of America.
Hey, good morning, guys.
Good morning, Ron.
Yeah, a lot has been asked, but nobody really asked this one yet. So what's your expectation for maybe the change in the M&A environment with the new administration?
Well, as you know, we've been very strong in the acquisitions area, and we bought this fiscal year five different businesses. Our teams, by the way, are busier than they've ever been, looking at a whole variety of deals in both segments, all sizes. So, for HEICO, it's been a strong market. I would anticipate, obviously people expect less scrutiny, more pro-business evaluation going forward. But I think for HEICO, we're very much a preferred buyer because we don't have some of the complications that other folks have. So, I think the regulatory environment improves, but it will still remain very good for HEICO.
And then one of the things to point out, of course, is that we have always been, as we said earlier in the call, a sort of a price and value-preferred supplier to our customers. We've always never pushed on the pricing button. We never pushed on like the monopoly buttons and things of that sort. And as a consequence, we've never had any issues to begin with in regulatory approvals. And of course, I think people generally expect, as Eric said, the regulatory environment to be more favorable to business and to companies like ours.
Got it. Got it. And then if I kind of keep pulling on the string a little bit, what's your appetite for doing another big one? You guys have gotten bigger. And then maybe two, if you can say, it's no secret that Boeing has been shopping some stuff around. Is there anything there that you guys would be interested in?
Yeah. Our appetite for acquisitions of all sizes, including larger ones, remains the same. And we do larger deals. We've done them when they make sense. We won't do them just for the sake of doing them or adding revenue. It's all to us about the bottom line. So that appetite is the same as well as for smaller acquisitions, as you've seen, including small bolt-ons or fold-in acquisitions for our companies. And the opportunities, by the way, are spread out across the board. Historically, we've been an opportunistic buyer, buying everything that makes sense to buy and nothing that doesn't make sense to buy.
And I think, Ron, if you look at Wencor, which was, of course, our largest acquisition to date, it's been an absolute home run. So I think we've proven to the market that we can execute and win and execute and assimilate these businesses and continue to generate the cash to basically get our leverage ratio back down so we can reload and do more. So I feel 100% confident in our ability to continue to do larger acquisitions.
Got it. Great, thanks, guys. Happy holidays.
Thank you. You too. Thank you.
And the next question comes from Louis Raffetto with Wolfe Research.
Hey, good morning, guys.
Good morning, Louis.
Eric, just to make sure I'm level set here. So, 13% organic growth in aftermarket repair parts. Do you have MRO and specialty products for the quarter? I know MRO had been a little bit lighter. It seemed like maybe that did accelerate in the fourth quarter?
MRO is approximately 11% in the fourth quarter, and specialty products were also 11% in the fourth quarter.
Okay. Perfect. Thanks you for that.
We had a small impairment to a trade name in the fourth quarter, amounting to about $1.5 million, which is just routine business at the end of the year. It’s not a significant issue. Are you inquiring about the contingent earn-out adjustments?
It seems there is a $1 million impact that would negatively affect earnings. Without this impact, margins would have been better, considering these one-time items or contingencies we’ve discussed. While it’s a negative now, it actually indicates a positive trend in the long term. I'm trying to understand how this might have played out.
The trade name was reflected in the ETG, and the approximately $1 million increase in the contingent earn-out liability was distributed fairly evenly across the two segments. This increase relates to accreting that liability to its terminal value. It's the usual fluctuations we experience each quarter as the discounted liability is accreted to its payout value. There is nothing out of the ordinary here.
Yeah. No, it makes sense. But again, it might explain some of the questioning or look at the sequential step-down in the FSG margins, if you got even $0.5 million. I'm not sure what that works out to, but just was curious. All right, that wraps up for me. Thank you very much.
Yeah. Just as a reminder, we make those adjustments every quarter because I wish I could record the full earn-out value on the balance sheet from day one, but you have to fair value it and then gradually increase it to the payout value. So every quarter, we will see a little fluctuation like that. The fourth quarter was just routine. There was nothing unusual about those adjustments.
Thank you.
At this time, I will turn the conference back to Laurans Mendelson for any additional or closing remarks.
I would like to thank everybody on this call for their interest in HEICO. And we look forward to our next earnings call, which would be for the first quarter of '25. Personally, I'm very optimistic about the outlook for HEICO. We see opportunity in acquisition and internal growth. And I feel that the company is doing extremely well, and it will continue to do so. So let us know if you have any other questions that we haven't answered during this call. And otherwise, we stand ready to speak to you at the end of the first quarter '25. Thank you very much.
And this concludes today's call. Thank you for your participation. You may now disconnect.