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Welcome to the HEICO Corporation Fourth Quarter 2025 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, among others, the severity, magnitude and duration of public health threats such as the COVID-19 pandemic, our 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 goods and services, product specification costs and requirements, which could cause an increase in our cost to complete contracts; governmental and regulatory demands, export policies and restrictions; reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing 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 and 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 Victor Mendelson, HEICO's Co-Chairman and Co-Chief Executive Officer.
Thank you, Samara, and good morning to everyone on this call. Thank you for joining us, and we welcome you to HEICO's Fourth Quarter Fiscal '25 Earnings Announcement Teleconference. As you heard, I'm Victor Mendelson, HEICO's Co-Chairman and Co-CEO. I am joined here this morning by Eric Mendelson, HEICO's other Co-Chairman and Co-CEO; and Carlos Macau, our Executive Vice President and CFO. As we start this call, Eric and I would like to take a moment to remember our father, Larry Mendelson, whom you all know was long HEICO's Chairman and CEO. As sons, we were beyond blessed to have a unique and loving father who instilled in us from our earliest days, values and life methods based on fairness, excellence and quality. As our father used to say, just doing the right thing. Of course, these values and life methods apply in business too. And as a businessman, he knew how much these matter, along with a fixation on real earnings, that is to say, cash flow. Many of you on this call will remember his unrelenting emphasis on cash flow, not artificial GAAP metrics, although he always lived by those GAAP metrics and enforced them; he knew what really mattered. Eric and I were also blessed to have been partners with our father from well before the three of us became HEICO's largest shareholders and mounted our effort to take over management. In a few weeks, we'll mark the 36th anniversary of our taking over here. Working with him to build HEICO day in and day out was a pleasure and an honor that few get to experience. Through his example, not only were Eric and I imbued with these values and business approach, but more importantly, all of HEICO became so imbued. That was his succession plan, and it worked perfectly. Our father is profoundly proud of HEICO. He was also one of the greatest optimists we ever knew. In his closing days, even after nearly 36 remarkable HEICO years, he was more optimistic than ever about this company's prospects. I can tell you that we and the HEICO team share that optimism. We are grateful for all that we learned from him. Thank you for indulging us for a few moments there. Before turning to our fourth quarter fiscal '25 record-setting results, which capped another exceptional year for HEICO, we recognize our team members' extraordinary efforts. Our team members' dedication to our customers and our endeavors across the organization were the reason for our very strong results this quarter and this year, leaving us quite optimistic about HEICO's future. We and HEICO's Board thank you for all you have done in 2025 and before, and we look forward to an even more prosperous 2026. To summarize our record results during the fourth quarter of fiscal '25, we note that consolidated net income increased 35% to a record $188.3 million or $1.33 per diluted share in the fourth quarter of fiscal '25, up from $139.7 million or $0.99 per diluted share in the fourth quarter of fiscal '24. Consolidated operating income and net sales in the fourth quarter of fiscal '25 represent record results for HEICO, which improved by 28% and 19%, respectively, as compared to the fourth quarter of fiscal '24. The Flight Support Group set all-time quarterly net sales and operating income records in the fourth quarter of fiscal '25, improving 21% and 30%, respectively, over the fourth quarter of fiscal '24. The increases principally reflect strong 16% organic growth stemming from increased demand across all of the group's product lines as well as the impact from our profitable fiscal '25 and '24 acquisitions. The Electronic Technologies Group also set all-time quarterly net sales and operating income records in the fourth quarter of fiscal '25, improving 14% and 10%, respectively, over the fourth quarter of fiscal '24. These increases principally reflect strong organic growth for most of the group's products and the impact from our profitable '25 and '24 acquisitions. Consolidated EBITDA increased 26% to $331.4 million in the fourth quarter of fiscal '25, up from $264 million in the fourth quarter of fiscal '24. Our net debt-to-EBITDA ratio improved to 1.60 as of October 31, '25, down from 2.06 on October 31, '24. Cash flow provided by operating activities increased 44% to $295.3 million in the fourth quarter of fiscal '25, up from $205.6 million in the fourth quarter of fiscal '24. Yesterday, HEICO's Board of Directors declared a semiannual $0.12 per share cash dividend on both classes of HEICO's stock payable in January 2026, representing our 95th consecutive dividend and reflecting the Board's ongoing confidence in our company's strong cash flow generation. We completed 5 acquisitions in fiscal '25, three in the Electronic Technologies Group and two in the Flight Support Group, further enhancing our sales and cash flow. Each of our Flight Support and Electronic Technologies groups recently entered into agreements to acquire two separate and unrelated businesses, one of which Ethos was just announced earlier this week. As of now, we anticipate both should close in the first quarter of calendar '26, though they are, of course, subject to customary closing conditions. We expect these acquisitions to be accretive to HEICO's earnings within the year of each transaction's closing. I'll now turn the call over to Eric Mendelson to discuss our Flight Support and Electronic Technologies Group's fourth quarter results in greater detail.
Thank you, Victor. Before we turn to the results, I want to pause and recognize the remarkable performance of HEICO's team members. What we are reporting today is the product of extraordinary talent, relentless execution, and a culture developed over decades that consistently turns ambitious objectives into real outcomes. Our team members have demonstrated the ability to rise to challenges, adapt, and deliver at the highest level. Their commitment, collaboration, determination, and creative approach are the foundation of these results and make them especially rewarding. We are sure that our dad is looking down on us today as we report these outstanding results and close our 36th year with HEICO. The Flight Support Group's net sales increased 21% to a record $834.4 million in the fourth quarter of fiscal '25, up from $691.8 million in the fourth quarter of fiscal '24. The net sales increase reflects strong organic growth of 16% and the impact from our fiscal '24 and '25 acquisitions. The increase reflects increased demand across all of our product lines. HEICO's operations have continued to exceed our expectations, underscoring our highly successful combination with Wencor. Customers increasingly recognize the value of our expanded aftermarket parts and repair and overhaul offerings, which has driven strong growth opportunities and continued success across the company. The Flight Support Group's defense business remains a compelling opportunity, particularly as both the U.S. administration and our foreign allies emphasize defense readiness and cost efficiency. HEICO is extremely well positioned to support these priorities by delivering high-quality and lower-cost alternative aircraft parts that help reduce costs for the government and taxpayers while expanding our addressable markets. Our missile defense manufacturing business is also experiencing significant growth, fueled by rising demand from the United States and our allies. We have substantial orders and backlog to support the continued expansion of this business, and we are committed to providing cost-effective solutions and industry-leading quality to our U.S. military and our foreign allies. The Flight Support Group's operating income increased 30% to a record $201 million in the fourth quarter of fiscal '25, up from $154.5 million in the fourth quarter of fiscal '24. This increase reflects the previously mentioned net sales growth and improved profit margin and SG&A expense efficiencies realized from the sales growth. The improved profit margin reflects net sales growth within our repair and overhaul parts and services product line and a more favorable product mix within our specialty products product line. The Flight Support Group's operating margin improved to 24.1% in the fourth quarter of fiscal '25, up from 22.3% in the fourth quarter of fiscal '24. The increased operating margin reflects improved gross profit margin. Since acquisition-related intangible amortization consumed approximately 250 basis points of our operating margin in the fourth quarter of fiscal '25, the Flight Support Group's cash margin, which is before amortization or EBITA, was approximately 26.6%, which is 160 basis points higher than the comparable Flight Support Group cash margin of 25.0% in the fourth quarter of fiscal '24. We are laser-focused on cash generation at each of our businesses. I am happy with the continued expansion of our cash margins and believe the decentralized operating structure has permitted us to expand these margins while simultaneously delivering high-quality products and services to our customers at substantial cost savings with quick turnaround times. Now I will discuss the fourth quarter results of the Electronic Technologies Group. The Electronic Technologies Group's net sales increased 14% to a record $384.8 million in the fourth quarter of fiscal '25, up from $336.2 million in the fourth quarter of fiscal '24. The net sales increase reflects strong organic growth of 7% and impact from our fiscal '25 and '24 acquisitions. The organic net sales growth is mainly attributable to increased demand for our other electronics, defense, aerospace and space products. The Electronic Technologies Group's operating income increased 10% to a record $89.6 million in the fourth quarter of fiscal '25, up from $81.8 million in the fourth quarter of fiscal '24. The operating income increase reflects the previously mentioned net sales growth and improved gross profit margin, partially offset by higher SG&A expenses, mainly reflecting increased share-based compensation expense. The improved gross profit margin reflects a more favorable mix of our medical and other electronics products. The Electronic Technologies Group's operating margin was 23.3% in the fourth quarter of fiscal '25 as compared to 24.3% in the fourth quarter of fiscal '24. The operating margin change reflects an increase in SG&A expenses as a percentage of net sales, primarily from the previously mentioned higher share-based compensation expense, partially offset by the previously mentioned improved gross profit margin. Importantly, before acquisition-related intangible amortization expense, our operating margin was a very healthy 27.3% as intangibles amortization consumed around 400 basis points of our operating margin. This is how we judge our business, as that most closely correlates to cash. On a true operating basis, these are excellent margins, and we are very pleased with them. Now I turn the call back to Victor Mendelson to discuss our outlook.
Thank you, Eric. Looking ahead to fiscal '26, we anticipate net sales growth across both the Flight Support Group and the Electronic Technologies Group, driven by organic growth from increased demand for the majority of our products as well as growth through our recent acquisitions. We'll continue to pursue selective acquisition opportunities that complement this growth, and our disciplined financial management remains dedicated to creating long-term shareholder value through a balanced combination of organic growth and strategic acquisitions while maintaining financial resilience and flexibility. Acquisition activity, of course, continues to be robust across both operating segments, supported by a healthy pipeline of potential acquisition opportunities currently under evaluation. We remain focused on identifying high-quality businesses that complement HEICO's existing operations and further strengthen our strategic positioning. Consistent with our long-standing acquisition philosophy, we will only pursue acquisitions and opportunities that meet our strict financial and strategic criteria that are accretive and have the potential to generate durable long-term value for HEICO and for our shareholders. Thank you very much for attending our call. Those are our prepared remarks, and we ask Samara, the operator, to please open the line for questions.
分析師問答
And we'll take our first question from Larry Solow with CJS Securities.
Great. I appreciate the comments on Larry, and I'm sure he's smiling down on the really strong free cash flow this quarter. So congrats on that.
Thank you, Larry.
Absolutely. First question, Eric, I guess to you, just on the growth and as we look at it at FSG, I think we used to view you as sort of a high single, low double-digit grower and grew in mid-teens plus on the core business for five-plus years. Maybe the first couple were COVID recovery, but just trying to, as we look at it, it feels like all the positives continue to align in your direction. Can you just help us just kind of bucket these drivers? Clearly, the market's growing nicely, but I don't know if growth has accelerated above historical levels where we are today. But is it just your expanded parts offering? Is it a market share? Is it just more acceptance of your parts? Just trying to, if you could just bucket those multiple positives driving your business.
Sure. Larry, I'd be happy to do that. And thank you very much for your kind comments. Yes, for sure, dad would be very, very happy with these results. I'm sure he is. So you're right. The organic growth has been tremendous, and frankly, it's even surprised us and me. I've always been optimistic, and I've always thought that we would continue to outgrow the market, but we continue to do so in a much more meaningful way. So you're right. Why is that? I think it's a number of things. Number one, of course, we want to be grateful for the rising tide environment in the industry. That's been terrific, and it's been strong for us. But I think the other thing that's been really good is the value proposition that HEICO offers our customers. The thing that perhaps I'm most proud of is that we've had 16% organic growth in this quarter and another 5% acquired on top of that for a total of 21% sales growth, but operating income increased 30%. Our customers are incredibly happy in getting huge value from us. We've been able to drive operating income, primarily off of the organic sales growth, and our customers are still very happy. I think that speaks to a tremendous sales opportunity that we have in all of our businesses, whether it's in the PMA parts, repair, distribution, specialty manufacturing, defense sustainment. I'm talking over on the flight support group side, and then, of course, on the ETG support group side, more growth opportunity there. I really think it's the value proposition that we offer combined with our decentralized and very entrepreneurial structure. I get emails after we announced the earnings from a number of different people within HEICO thanking me for the incredible results. I turn around and say, “No, yes, we've been very good on capital allocation, but they're the ones who really deliver these results. We're just reporting the results that they deliver.” It's as a result of being very intimate with their product line, understanding their customers, the whole competitive dynamic. As there are more aircraft out there and there's increased demand in both commercial aircraft as well as defense products and missile interceptors, we are just incredibly well-positioned. The organic growth has surprised me. That's one of the reasons why we don't give guidance because we don't know where it's going to be. We just know at HEICO that we've got 11,000 people come to work every day, put their heads down, and work as hard as they possibly can, and frankly, the result of the results. But I do think that the value proposition is tremendous. One of the other things that I think we've seen over the last number of years is that other manufacturers are increasing their prices substantially. I think that just further supports the HEICO value proposition. I think we're just in a great place right now.
No, I appreciate all that color. That was great. Victor, how about a question for you. Just I think you obviously had a little sluggishness last year, but a good year this year. It feels like most of your end markets or if not all of them now are kind of pointing up and to the right, obviously, led by defense. I know the National Defense Authorization Act that was just passed recently, it feels like that was positive. So any just general thoughts on state of the union on your outlook?
Yes. We're projecting growth next year in ETG. As I always do, I guide people to look for on an organic basis, mid- to low single-digit organic growth. If we do better, that's great. We'll see where everything shakes out a year from now and over the quarters, but we feel very good about our businesses. We did our budget reviews, our subsidiary annual reviews. As a rule of thumb, our companies are feeling good. Not every company is going to march ahead next year in the way we'd like to see. But overall, very close.
We'll take our next question from Ron Epstein with Bank of America.
And again, my condolences about your father. On the quarter itself, let's just a couple of quick things. How are things looking for M&A as we go into 2026?
Very strong. I mean, we're working on a lot of opportunities. I would say each quarter, we feel like it can't get any busier. Our pipeline is busier and busier, but that's exactly what happened in this past quarter and in recent weeks since the quarter ended. We have a lot we're working on, a lot that we're looking at. Of course, it doesn't happen until it closes. There's a lot of work, a lot of diligence. We're extraordinarily discerning in what we'll buy. But we're fortunate in that we are known as a great home for sellers, particularly entrepreneur founder managers and others who are going to take care of the businesses, honor the legacy, and keep the entrepreneurial environment. There's a lot of opportunity for us. We'll see what we're able to mine out, but we're cautiously optimistic.
And Ron, I would also just add to that. We started our acquisition program in earnest about 27 years ago. We've acquired, I don't know, 110 companies, and we really have a track record. It's a very long track record in our DNA, embedded in the company. So when we talk to sellers, we're viewed in a very, very different light. We've got just a tremendous lot of bandwidth, and we also have a lot of different sellers who viewed us as the buyer of choice. We're in a really good position there.
Got it. And how comfortable are you guys leveraging that to do a deal given the balance sheet is so strong?
Ron, this is Carlos. I would say similar to history, we're not afraid of leverage. For the right transaction, for the right deal for our shareholders, we would take on additional leverage. I don't think that our company, the culture and the way we do business would suggest we'd like to have permanent leverage in the 5 or 6 range. But if we had to spike up to 4, 5, or 6x to do a deal, and I felt comfortable that within 12 to 18, 24 months, we could get that leverage back down to a manageable number, we would certainly do that if it was good for our shareholders. Traditionally, we like leverage to be around 2x. Right now, our permanent debt or bonds are sitting at about 1 turn of EBITDA. That's very comfortable. I think we could probably carry 2 turns of debt in permanent financing posture and be comfortable with HEICO with the cash generation that we have.
Got it. And then maybe just one last one for me. You mentioned last year about doing PMA parts for defense. How is that going? Is there any progress on that front?
Ron, this is Eric. Yes, there has been progress on that front. But as we always said, it was really going to be more of a medium-term project. It takes time for the government to do all the stuff that they have to do. However, we think there's a very big opportunity there for us, and we're quite excited about it.
We'll take our next question from Peter Arment with Baird.
Eric Victor, Carlos, nice results. Eric, you talked a little bit about defense and missile defense. If I remember correctly, defense and space is roughly about a quarter of the FSG segment. Do you see that mix changing much, just given all the growth you're highlighting?
I think actually, it's going to probably remain pretty consistent because we have so much growth over on the commercial side that they're doing a great job keeping up with the huge growth over on defense. There are massive opportunities for us on the defense side. As our customers become more familiar with our broad capabilities, we're delivering huge value. We've got design capability, manufacturing capacity across a wide array of products. We're able to solve all sorts of complex problems for them. I think there's a big opportunity there, along with the launch business. We're careful not to talk about specific programs or customers because we don't want to give a roadmap to our competitors, but there have been very well-known companies coming into HEICO into our Specialty Products group and other businesses seeking solutions to major problems. I'm proud of our team. So I think there's a big opportunity there.
This is Victor. It's a good question. Obviously, we're excited about Golden Dome. It consists of several existing programs. We understand it's not entirely publicly defined or entirely discussed on a public call. However, you have existing programs where we have a great presence, some of which Eric alluded to. There is a lot of reconnaissance, surveillance and tracking being added to it and networking. Our businesses have been told that some of the things they are working on are related to it without going into the specifics on those programs. We'll have to see down the road how much it'll be. It's definitely additive, and we are excited about it. We think it's the right thing for the country, and many of our companies have components on the Iron Dome parts.
We'll take our next question from Ken Herbert with RBC Capital Markets.
Very nice results. Maybe, Eric, just to start, you've grown FSG margins pretty substantially, about 300 basis points from '21 to '24 or '22 to '25. I appreciate part of that's been mixed with Wencor. You've seen some opportunities in pricing in other areas. How do we think about FSG margins into fiscal '26 and beyond? Is there any reason we don't see continued pace of improvement?
Ken, thank you for your question. While we don't give guidance, you're right. We've grown margins substantially. The thing I'm proud of is that we've kept our customers happy while doing that. I do think there's continued margin opportunity for us, continued margin expansion as we have greater absorption of our fixed costs. We've made significant investments over the last years to broaden our manufacturing and design capabilities. So I think we'll continue to see improved margins. It's hard for me to guess what that is because of the conservative nature of our subsidiary budgets, but I know they end up outperforming. I think Carlos may have some thoughts on that.
You're hiking the football, Tommy? Ken. Here's the deal. I believe that the FSG is going to play between 23.5% and 24.5% GAAP operating margins. The reason I have a wide vector there is because we have noticed and talked about some mix impacts on the margin, particularly in Specialty Products and repair and overhaul. Historically, the FSG margin story has been about volume. Until that mix settles down, it's hard to tighten that. I think you could expect between those ranges and hopefully, towards the high end, but there will be reasons if we aren't.
That's helpful, Carlos. If I could, Eric, just one other question. It seems like there's a debate around better deliveries out of Boeing and Airbus and the implications for aftermarket spending. Can you comment on what you're seeing at airlines today as they think about 2026 around aircraft retirements, fuel prices, continued use of older assets? Just what's your view on aftermarket fundamentals into 2026?
Yes, it's a great question. We respect Boeing and Airbus. We think they will get supply chain issues worked out. They put out the best products. The world needs them. Regarding the aftermarket for older aircraft, we think the older aircraft will continue to be in demand. The retirement rates have been consistent, and the aging fleet consumes a large amount of parts. We believe we are in a strong position. We're long-term investors, we don't focus on quarter-to-quarter micro moves. The airlines recognize the massive need for suppliers to fill gaps; we're ready to meet that demand. We believe aftermarket fundamentals will remain strong.
And we'll take our next question from Sheila Kahyaoglu with Jefferies.
I would like to begin by expressing condolences for Larry, as we were fortunate to have known him, and he has had a significant impact on all of us. Turning to our performance for 2025, it has been excellent, particularly this quarter. Eric, I wanted to ask about FSG growth, especially since it has accelerated this quarter. Can you provide any insights into which parts of the business are expected to outperform as we approach fiscal 2026? You've recently announced transactions like EthosEnergy and others. Could you elaborate on how these fit into the overall Wencor and FSG strategy?
Sure. I would be happy to. Sheila, thank you for the nice comment about that, and he always respected you and your fellow analysts very much. As for subsectors, I’m sorry to sound like a broken record, but I think we see strength across the board. Ethos is a strong company in the industrial gas turbine market, which is crucial. We believe we are in a good position to help Ethos with their program related to AI power demand. We allocate acquisitions based on capacity, and Wencor has the talent to drive that business forward. We think that there are tremendous opportunities.
Can you also talk about the Axillon Fuel Containment business? Does that work with Robertson? How do you see that fitting in? Can we think about annual revenues in the $125 million range for that one?
The business is separate from Robertson. It's a supplier to Robertson. They have been a customer, and together they can bring additional benefits and increase competitiveness for our customers. We didn’t break out the revenue from the business, so I have to be careful. Timing issues and approvals will also influence the amount of revenue we recognize in fiscal '26.
We'll take our next question from John Godyn with Citigroup.
I appreciate that we've gone away from annual guidance. Every few years, you guys reiterate that 15%, 20% net income growth target. We've had a couple of years of amazing net income growth. Consensus expectations indicate a sharp deceleration over the next few years. Take the temperature. How do you feel about 15%, 20% as a multi-year growth number from here? Is a sharp deceleration in growth rates likely?
So John, thank you for your question. The 15% to 20% has been aspirational. The company is structured in a way that we harness the entrepreneurial efforts of our people. All subsidiaries have organic growth targets consistent with those numbers. We believe we are in a good position to continue growing. On the acquisitions side, we're still in a very good spot. As you get bigger, it may become more challenging, but nothing has changed with our focus. We are set up to continue this growth.
Hey, John, this is Carlos. Let me refer you to history. We've compounded our bottom line at 18% for 35 years, proving we can do it. Every year, we sit down, do our budgets and look at performance in the markets, aiming for 15% to 20% growth. I don’t see anything impeding these aspirational goals. We target this as a group, board, and company.
Also, when looking at our leverage at roughly 1.6x, we have the cash generation capabilities. We generated $934 million from operations. We can take that cash and acquire entrepreneurial businesses where people want to be part of HEICO. There’s no change to our program.
And we'll take our next question from Noah Poponak with Goldman Sachs.
Can you hear me okay?
We can.
Those were nice comments about your father. It was great to work with him. Staying on these FSG margins a bit, Carlos, you talked about mix. Can you parse out the pieces of that? How much of it was mix? Can you tell us what those mix items are and what you expect them to do next year? How much of it was pricing philosophy?
The price part, we probably get one or two or three points worth of price each year. We cover our labor inflation, and raw materials are a lower piece of the total bill of materials. Our concerns are primarily labor inflation and, overall, we get enough price from our customers to cover that. We've seen an increase in gross margin with our repair and overhaul business attributed to heavier PMA and DER repairs. That shift towards a heavier defense play in specialty products has improved margins. The parts business has been growing tremendously, outpacing other verticals. As we grow, we can gain efficiencies on SG&A and fixed costs. These are key contributors to FSG's margins. I see this as durable margin improvement, and I expect continued growth in margins.
That's really helpful color. You want to have some conservatism in what you're saying about the forward, but the operating margin is pretty far below the gross margin. So all else equal, if you're growing volumes, you would have your normal increments and be able to just expand margins. It's not always all else equal, but okay.
We don't size it. In our public filings, you will see that within the FSG, we break out specialty products in our defense business. You'll see how that business has grown. For competitive reasons, we don't size it.
Okay. How do you expect capital deployed towards acquisitions in '26 to compare to '25 size-wise?
Look, Eric and Victor like to buy every shiny object they can get their hands on. I expect we will continue at a higher pace. We're not constrained, and we have a tremendous opportunity set. We’re very selective. The basket of opportunities is the biggest it's ever been. We hope to repeat what we did last year into 2026. We are guided by our aim to grow 15% to 20% bottom line. If we exceed that, it's because we had extraordinary opportunities for our shareholders.
Noah, just adding a little color on why we're optimistic on the acquisition front: We’re leveraged at 1.6x, which gives us plenty of firepower. Our businesses generate a lot of cash, and putting that cash to work is a big task. We've done 110 acquisitions, we know what's important, and we have dozens of entrepreneurs who view HEICO as the best home. We have an incredible acquisitions team working hard, making sure we're in every process and talking with potential sellers.
We'll take our next question from Tony Bancroft with Gabelli Funds.
Pass along my condolences to Mr. Mendelson. He really was the best of the best, and he's going to be sorely missed here at Gabelli. With the Ethos acquisition, it seems like you're going outside your traditional M&A scope, but there are adjacencies. Is there sort of a new outlook on where you would go across aerospace or maybe other areas of high growth? With the defense budget strength, could you talk about any that could be outside your typical adjacencies?
Tony, thank you for the nice comments about our dad. We like the IGT area and have been in it through many of our businesses for decades. We prefer to grow into adjacent white spaces where we understand the technology. There will be a lot of tailwinds for a long time. Our approach is to go into the market with an OEM-aligned strategy. We believe we can add significant value.
This is Victor. That has been our history. When we started, HEICO had one product. Over the years, we've stepped carefully but intentionally and successfully into these white space adjacencies. Our product offering today is vastly expanded. It doesn’t look anything like it used to, but it's happened over time. We just keep at it. I would expect we'll continue to do that. We don't have specifics on where we're going, but they will be sensible and connected to what we're currently doing.
And we'll take our next question from Jonathan Siegmann with Stifel.
Condolences again to your family and company for your father and Chairman. We look forward to you keeping the legacy alive by preserving the culture.
Thank you. And John, we've known you a long time. Dad always admired you and appreciated your confidence and comments.
You constantly characterized PMA for military as a medium-term opportunity, and we've seen executive orders and directives. We had a spirited opening statement at AUSA by the Secretary of the Army specifically about parts. What’s really changing? Is the opportunity being pulled forward? Look, the U.S. military operates many commercial derivative aircraft. A lot of these parts and repairs have been approved by the FAA, and there's no reason the government shouldn't take advantage of them. The gap between what the senior people in the building say versus what gets done can take time. This administration is focused on getting that done. We are very bullish on the opportunity. It takes time for government processes, but we believe it will be rewarding for HEICO.
We'll take our next question from Scott Deuschle with Deutsche Bank.
Carlos, just to clarify your response to Noah's question, are the Specialty Products gross margins generally higher or lower than the FSG submarkets?
We don't get into vertical margin profiles. Our PMA business is our highest margin business, but the other FSG verticals float around the average segment margin. That's the best I can do for you.
Are your largest customers for FSG's PMA and repair solutions, firms like United, Delta, or Lufthansa, running flat out by buying essentially everything from FSG? Or is there still white space for FSG to do more? Our largest customers are buying a lot, but there remains tremendous potential. Sometimes they have contracts with others or inertia affects approval of our products. We continue to have significant opportunities and wins with major airlines and products, whether they're parts or repair services. I remain very bullish.
And we'll take our next question from Scott Mikus with Melius Research.
You operate a decentralized structure with many disparate units. When pursuing new business opportunities, do your operating units compete for the same work packages? Do you require them to collaborate, or do you let them work independently?
It's rare that we find our businesses in competitive situations. More often, they collaborate. We don’t police our businesses or tell them what to sell; we encourage cooperation. They’re focused on finding the most cost-effective solutions because that’s what we’re known for. We are aware of cases where customers prefer different businesses for competition but are happy to let the customer make a choice.
I wanted to wish you and your families happy holidays. Victor, a happy belated birthday as well.
Thank you, Scott. I appreciate it, and we wish you happy holidays as well.
And we'll take our next question from Gavin Parsons with UBS.
How integrated are the HEICO and Wencor part and repair catalogs? How long can that be a growth tailwind from cross-selling?
We offer many different products across businesses. There is some overlap, and it's whatever the customer wants. If they want to buy from one business or the other, that's fine. We're agnostic and want to serve the customer. I think there are additional opportunities to work together, and we've helped various businesses forward, which is evident in our results.
And we'll take our next question from Alexandra Mandery with Truist Securities.
What is your PMA portfolio exposure like regarding new entrants, including LEAP, GTF, GEnx? Do you see that as an opportunity, including first-time shop visits on the PMA front?
When an engine is new, it tends to be under warranty, which isn't a big opportunity for us on the PMA side. It may be more for repair. As those platforms age and customers seek alternatives, that comes into focus. We are confident in our ability to develop current and next-generation technology.
The trends we talked about earlier in the call and the optimism for various markets is intact. Not all markets are strong or offer opportunities. In space, there are many opportunities, but many are profitless. We’ve avoided those situations and believe we can add significant value while being successful in established markets. We serve both defense and tech communities and see great potential there.
We'll take our next question from Gautam Khanna with TD Cowen.
My condolences, Larry was a fantastic kind of a legend in the industry. I had a couple of quick ones. Do you view Class A stock and is there ever going to be a desire to remove it and just get to common? Your opinions?
At the moment, I believe it’s status quo. We've discussed the issues over time. Collapsing them requires exchange value. If done at one-to-one, it may upset common holders. If we do it at current prices, it may upset Class A holders. They are identical in benefits except for voting. Both classes belong at the same price. We believe they will converge.
In terms of demand by region, other companies mentioned China may have pre-bought spare parts. Have you seen trends suggesting pre-buying or in PMA parts?
We see strength in all areas. I wouldn't say one region is stronger than others. Demand can be a bit lumpy because orders come in various times throughout the year, but there are no specific trends indicating pre-buying.
Regarding the pipeline of new PMA parts, typically, you have given a range of as many as 500 in a given year. What does that look like for '26 in terms of what you're introducing?
It's consistent with our historical performance. Really no change there. We’re happy with the number of parts we’ve released, and we are at a similar number for several years. Our decisions have proven beneficial.
And we'll take our next question from Cashen Keeler with BNP.
How supportive has the FAA been regarding parts approvals? It seems like everything related to FAA approvals has taken longer.
We have a great relationship with the FAA, and we interact with them regularly. I would say it's business as usual for us. Everything is progressing very well.
And we'll take our next question from Louis Raffetto with Wolfe Research.
Victor, could you give the end market growth within ETG for the quarter? How is defense versus electronics?
We did not break that out publicly, Louis.
Regarding CapEx, you spent more in Q4. Can you point to what that extra spending was for? No. I think it was business as usual, where projects get accelerated toward year-end due to deals. We consistently spend around 1.5% to 1.6% of our revenues on CapEx, and I expect that range to continue into 2026.
And at this time, I will turn the conference back to the management team for any additional or closing remarks.
Thank you very much, Samara. We appreciate your coverage of the call for us. We wish everybody on the call a wonderful holiday season, and we thank you for listening today. We look forward to talking with you on the next call or if not sooner. Thank you very much.
And this concludes today's call. Thank you for your participation. You may now disconnect.