Larry Mendelson - Chairman and CEO Eric Mendelson - Co-President and President, HEICO's Flight Support Group Victor Mendelson - Co-President and President, HEICO's Electronic Technologies Group Tom Irwin - Senior Executive Vice President Carlos Macau - Executive Vice President and CFO.

J.B. Groh - D.A. Davidson Larry Solow - CJS Securities Tyler Hojo - Sidoti & Company Michael Ciarmoli - KeyBanc Capital Sheila Kahyaoglu - Jefferies Jonathan Morales - Canaccord Chris Quilty - Raymond James Steve Levenson - Stifel Jim Foung - The Gabelli & Company.

Hello and thank you for standing by. Welcome to the First Quarter Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] Certain statements made in this call will constitute forward-looking statements, which are subject to risks, uncertainties and contingencies.

HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including, but not limited to lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services, product development or products, specification cost and requirements, which could cause an increase to 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 product pricing levels, which could reduce our sales or sales growth, product development difficulty, which could increase our product development costs and delay sales, our ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest and income tax rates and economic conditions within and outside the aviation, defense, space, medical, telecommunications and electronic industries, which could negatively impact our costs and revenues, and defense budget cuts which could reduce our defense-related revenue.

Those listening to this call are encouraged to review all budget -- all of HEICO's filings with the Securities and Exchange Commission, including but not limited to the filings on Form 10-K, 10-Q, and Form 10 -- 8-K.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. I would now like to turn the conference over to Laurans Mendelson. Please go ahead..

Thank you very much, and good morning to everyone on the call. We thank you for joining us and we welcome you to this HEICO first quarter fiscal 2015 earnings announcement telecon. I am Larry Mendelson.

I am the Chairman and CEO of HEICO Corporation, and 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; Tom Irwin, HEICO's Senior Executive Vice President; and Carlos Macau, our Executive Vice President and CFO.

Before reviewing our first quarter operating results in detail, I’d like to take a few moments to summarize the quarterly highlights. Consolidated first quarter net sales increased to $268.2 million in the first quarter of fiscal ’15. This compared to $266.8 million in the first quarter of fiscal ’14.

Our continued year-over-year increase in net sales was principally driven by increased demand for certain of our commercial aerospace and defense products in ETG and Flight Support, as well as the impact of one of our two recent acquisitions, which were closed in late January ‘15 and that was partially offset by expected lower sales -- net sales of certain industrial products in our specialty products line.

You will remember that we mentioned of this expectation in our fourth quarter ‘14 conference call. Consolidated net income per diluted share was $0.41 in the first quarter of fiscal ’15.

Excluding the net $0.04 benefit in the first quarter of fiscal ’14, which was due to reduction in accrued contingent consideration, our diluted earnings per share was up approximately 11% over the prior year and those results were $0.02 per diluted share higher than our internal forecast for the first quarter of ’15.

All of you on this call know that we do not give quarterly guidance, we give annual guidance, we feel confident of that, but we do not try to guess quarterly guidance. We continue to generate strong cash flows from operating activities. First quarter fiscal ’15 cash flow from operating activities was $29.5 million.

This compared to $33.5 in the first quarter of fiscal ’14. Generally our first quarter cash flow from operating activities is significantly lower than quarterly cash flow generated from operating activities during the balance of the year.

Without going into detail to explain the $4 million lower cash flow, it's all set forth in the consolidated statements of cash flow and it’s a combination of miscellaneous items none which really seriously impact or indicate any problem at all with the cash flow. There are line items which you will all can see and analyze.

Things like decrease in current liabilities of $4 million and things like that.

Our net debt to shareholders equity was 42.9% on January 31, 2015 and net debt which is debt less cash and cash equivalents was $336.5 million and that had principally been incurred to fund acquisitions, as well as the payment of special cash dividends in fiscal ‘14 and ’13.

Our net debt to trailing 12 months EBITDA ratio was approximately 1.37 at January 31, 2015 and that compared favorably to approximately 1.52 at January 31, 2014. During the first quarter of fiscal ’15, we completed two strategic acquisitions.

In January ’15, Flight Support acquired 80% of the equity of Aeroworks International Holdings, which is headquartered in the Netherlands and maintain significant production facilities in Thailand and Laos, is the manufacturer of composite and metal parts used primarily in aircraft interior applications, including seating, galleys, lavatories, doors and overhead bins.

Aeroworks has a significant international manufacturing footprint, which marks an expansion of HEICO’s production flexibility. Additionally, Aeroworks bring significant design expertise and manufacturing capabilities to HEICO -- to the HEICO network and that should benefit our customers worldwide.

At the end of January ’15, our Flight Support Group acquired 80.1% of the equity of Harter Aerospace. Harter is a globally recognized component and accessory maintenance, repair and overhaul stations, specializing in commercial aircraft accessories, including thrust reverse actuation systems and pneumatics, electromechanical components tool.

Harter brings additional impressive MRO expertise and capabilities to the HEICO network. We expect both acquisitions to be accretive to earnings within the first year after closing.

In January ’15, we paid a semiannual cash dividend of $0.07 per share and this dividend presents a 17% increase over the prior semiannual per share amount of $0.06 and that was our 73rd consecutive semiannual dividend since 1979.

I would now like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group and he will discuss the results of the Flight Support Group..

Thank you.

The Flight Support Group net sales increased to $182.1 million in the first quarter of fiscal ‘15, up from $181.6 million in the first quarter of fiscal ’14, driven mainly by new products offerings and favorable market conditions in our aftermarket replacement parts in repair and overhaul services product lines, as well as additional net sales contributed by a fiscal ’15 acquisition, partially offset by the expected lower net sales of certain industrial products in our specialty product line.

This performance follows The Flight Support Group’s 19% organic growth in the first quarter of fiscal 2014. The Flight Support Group’s aerospace and defense product lines experienced organic growth of approximately 5% in the first quarter of fiscal ‘15 which excludes the industrial product decrease in our specialty product line.

The lower net sales of industrial products in our specialty product lines principally resulted from reduced demand associated with a particular customer in a related completion of that customer’s multiyear orders in late fiscal 2014.

As a result of the aforementioned lower demand in industrial product, The Flight Support Group experienced a 1% organic revenue decline in the first quarter of fiscal ‘15 compared to the first quarter of fiscal ‘14, which showed 19% organic revenue growth and was a tough comparable quarter for us.

The Flight Support Group’s operating income totaled $30.7 million and $32.2 million in the first quarter of fiscal ‘15 and ‘14 respectively. The decrease in the first quarter of fiscal ‘15 principally reflects the previously mentioned lower industrial products net sales.

The Flight Support Group’s operating margin was 16.9% and 17.7% in the first quarter of fiscal ‘15 and ‘14 respectively. The decrease in the first quarter of fiscal ‘15 principally reflects the previously mentioned lower industrial product net sales within our specialty product line.

Now I would like to introduce Victor Mendelson, Co-Presidents of HEICO and President of HEICO’s Electronic Technologies Group to discuss the results of The Electronic Technologies Group..

Thank you, Eric. The Electronic Technologies Group’s operating income totaled $19.4 million and $22.9 million in the first half of fiscal ‘15 and ‘14 respectively.

The decrease in the first quarter of fiscal ‘15 is principally attributed to $4 million net benefit from the accrued contingent consideration reduction in the first quarter of fiscal ‘14 partially offset by the previously mentioned increased net sales and more favorable product mix for certain of our defense products.

The Electronic Technologies Group’s operating margin was 21.8% and 26.2% in the first quarter of fiscal ‘15 and ‘14 respectively.

The decrease in the first quarter of fiscal ‘15 principally reflects the aforementioned prior year accrued contingent consideration decrease partially offset by the previously mentioned increase in net sales and more favorable product mix for certain of our defense products. I’ll turn the call back over to Larry Mendelson..

Thank you Victor and Eric. Moving onto diluted earnings per share, consolidated net income per diluted share was $0.41 in both the first quarter of fiscal ‘15 and ‘14 and previously mentioned first quarter of fiscal ‘14 had a net benefit of $0.04 per diluted share associated with the reduction in accrued contingent consideration.

Depreciation and amortization expense decreased by $1.1 million in the first quarter of fiscal ‘15, down from $12.1 million in the first quarter of ‘14. The decrease in the first quarter of fiscal ‘15 again principally reflects lower amortization expense of certain intangible assets.

R&D expenses totaled $9.3 million in the first quarter of fiscal ‘15 that was up from $9.1 million in the first quarter of ‘14. Significant ongoing new product development efforts are continuing at both Flight Support and ETG as we continue to invest approximately 3% to 4% of each sales dollar into new product development.

Our effective strategy for the last 24 years has been to reinvest the portion of our earnings into the development of new products and services that we can offer at lower cost to our customers which in turn facilitates market share growth, sufficient to meet our growth goals.

SG&A expenses and SG&A as a percentage of net sales totaled $47.4 and 17.7% -- $47.4 million and 17.7% in the first quarter of fiscal ‘15 as compared to $41.7 million and 15.6% in the first quarter of fiscal ‘14.

The increase in SG&A expenses and SG&A as a percentage of net sales principally reflects an increase in G&A expenses reflecting the impact of the previously mentioned decrease in accrued contingent consideration that was recorded in the first quarter of fiscal ‘14.

Interest expense decreased to $1.1 million in the first quarter of fiscal ‘15, down from $1.3 million in the first quarter of fiscal ‘14.

That decrease was principally due to a higher weighted average balance outstanding under our revolving credit facility in the first quarter of fiscal ‘14, which was associated with our fiscal ‘13 acquisitions as well as the payment of special cash dividends in fiscal ‘14 and ‘13. Other income in the first quarter of both periods was not significant.

So I won't comment on it. The company’s effective tax rate in the first quarter of fiscal ‘15 decreased to 29.5% from 33.9% in the first quarter of fiscal ‘14.

That decrease is principally due to an income tax credit for qualified R&D activities for the last 10 months of fiscal ‘14 that was recognized in the first quarter of fiscal ‘15 and that resulted from the retroactive extension of the U.S. federal R&D tax credit which was done in December ‘14 to cover the calendar year 2014.

We continue to estimate our effective tax rate and noncontrolling interest rate expressed as a percentage of pretax income to be approximately 39% for the full fiscal ‘15. Net income attributable to noncontrolling interest was $4.5 million in the first quarter of fiscal ‘15 that compared to $5.1 million in the first quarter of fiscal ‘14.

The decrease in first quarter of fiscal ‘15 principally reflects lower allocations of net income to noncontrolling interest in the first quarter fiscal of ‘15 due to the acquisition of certain noncontrolling interest during fiscal ‘14 and that was partially offset by higher earnings of certain of those subsidiaries of The Flight Support Group and ETG in which the noncontrolling interests are held.

Moving onto the balance sheet and cash flow, our financial position and forecasted cash flow remain very strong.

Cash flow provided by operating activities totaled $29.5 million in the first quarter of fiscal ‘15 and consisted primarily of net income from consolidated operations depreciation and amortization expense partially offset by some changes in working capital. I commented on that a little bit earlier.

Working capital ratio of 3.1 continues to remain strong as of January 31, 2015, that was up nicely from 2.8 as of October 31, 2014. Days sales outstanding, DSOs, of accounts receivable was 52 days, January 15, 2015 and January 31, 2014. We’ll continue to closely monitor receivable collection efforts in order to limit credit exposure.

We really lose very much on accounts receivable losses. No one customer accounted for more than 10% of our net sales. Our top five customers represented approximately 17% of consolidated net sales in the first quarter of fiscal ‘15 compared to about 16% in the first quarter of fiscal ‘14.

Inventory turnover rate was 120 days as of January 31, 2015 and that was close to 118 days as of January 31, 2014.

Net debt to shareholders equity was 42.9% on January 31, 2015 and net debt, which is total debt less cash and cash equivalents of $336.5 million, principally incurred to fund acquisitions as well as the payment of special cash dividends in fiscal ‘14 and ’13.

We have no significant debt maturities until fiscal ’19, and we plan to utilize our financial flexibility to aggressively pursue high-quality acquisition opportunities to accelerate growth and maximize shareholder returns.

As for the outlook, we look ahead to the remainder of fiscal ‘15 and we continue to anticipate organic growth within Flight Support Group product lines that serve commercial aviation markets and that will be moderated by lower demand for certain of our industrial related products within the product -- the specialty product lines.

We expect improved organic growth within ETG, compared to the prior year and this should reflect increased demand for the majority of our products. During the remainder of fiscal ’15, we plan to continue our focus on new product development, further market penetration, executing acquisition strategies and maintaining our financial strength.

To give you a little bit of color on the acquisition pipeline at this moment, it is quite robust. As a matter of fact, our Executive Group had commented earlier today that we’ve probably never seen as robust, as it is at the movement.

The acquisitions that we are looking at, all fall within guidelines that we are used to paying fair prices, which would result in accretive acquisitions going forward certainly in the first year of acquisition. And I can tell you that our entire staff is working quite hard on a number of these transactions.

Based upon our current economic visibility, we continue to estimate full fiscal year growth in both net sales and net income of approximately 8% to 10% over fiscal ’14 levels, with consolidated operating margins approaching 18%.

In addition, we continue to anticipate depreciation and amortization expense of approximately $48 million and capital expenditures to approximate $25 million, cash flow from operations expected to approximate $200 million.

In closing, we would continue to focus on intermediate and long-term growth strategies with an emphasis on acquiring profitable businesses at fair prices. And that is the extent of my prepared comments. I would like to open the floor to questions..

[Operator Instructions] Your first question is from J.B. Groh with D.A. Davidson..

Hey guys..

Good morning, J.B..

Hey. I had a question, Larry, on the guidance. You said 8% to 10% on the revenue, which is, I think unchanged from last quarter but you made these two acquisitions. I know you didn’t disclose a lot of financial information on those for obvious reasons.

But can we just infer from the maintaining of the guidance that those acquisitions sort of fall within that range of revenue that you would have no change?.

Yeah. J.B., I think when we gave the initial guidance in the fourth quarter of December ‘14, I think we did mention that that guidance included two of potential acquisitions. They have not been closed at that point, but we were highly confident that they would close. So that was included in the initial guidance..

Okay. So those were the two deals that were. Okay. Good. Okay..

Yeah. That’s correct..

Okay.

And then maybe one for Eric, could you kind of remind us what the weighting of industrial is within FSG project?.

Good morning, J.B. Yes, as the industrial products in last year's first quarter were about 10% of FSG and in this year’s first quarter were about 4% of FSG. So it’s a fairly small piece of our business..

Okay.

So that had to be a pretty significant drop of this customer rolling off?.

It was. It was. It’s about a $10 million drop. We had anticipated some additional industrial product demand for some new products, some replacement products in that business. But unfortunately, the manufacturer’s programs flipped a little bit to the right, so that impacted us.

But we do anticipate that we will in our specialty products group to be actually increasing our aerospace exposure and again, some of that flipped to the right as well but that should be kicking in really in the second half of the year. It looks like we’ll sell off.

Specifically, we will not come back, so we do have other products and work again mostly aerospace, a little bit industrial pickup of this asset..

J.B., to put a little color on this industrial, I don’t want anybody to think that Heico has decided we are going to go into industrial products and do a big push there, that’s not the case at all. This product was a direct outgrowth of some of the work in R&D that we had done and produced for the aerospace world.

And the industrial -- certain industrial customers came to us and asked us to produce a product, which had similar characteristics but would be used in industrial as supposed to aerospace. So, it was just gravy for us. It was a very good transaction, was a win-win for the customer, was a win-win for us.

But we are not going off on a tear, at least not that I know off that we are going to focus on industrial. We are still heavily in the aerospace business. We want to stay there..

Great. And then one for Victor.

Hey, Victor, could you maybe give us some commentary on the sub segments within ETG like you’ve done in the past, pockets of strength and weakness in medical, military, et cetera?.

Sure, J.B. Thank you. This is Victor. Overall in the quarter, aerospace was particularly strong for us, which would be our kind of sales into commercial aviation markets would be -- I think in terms of growth outlook was strong for us and actually as was our medical end markets. Those were strong as well, I think notably.

Defense was actually pretty good, at least in the period wasn’t shrinking and when we we're seeing a little bit of a turnaround there, some growth there and commercial space also gave us some growth and kind of the other miscellaneous markets would have been the headwind in the quarter..

Okay. Thank you..

Your next question is from Larry Solow with CJS Securities..

Just one quick global and any specific question.

Perhaps it’s a little earlier in the game but I know you guys build in a certain level of aircraft retirements and with the precipitous drop in oil, are you seeing -- I mean, anecdotally, you are in that airlines or at least hesitating somewhat on retiring some of this aircraft, what do you think about that dynamic going on?.

Hi. This is Eric. So, I will answer the question. Yes, we are starting to see that some of the airlines are pushing out their retirements of certain of these aircrafts, right with fuel at a low price that makes a lot more sense to operate these aircrafts. So that will help us.

I think the airlines want to see a little bit of a sustained level before they make a major commitment to the older equipment. But as the new stories come out, it appears that fuel’s is staying at a lower level for an extended period of time. We do believe that will help our aftermarket, the replacement parts and overall in repair of businesses.

The other thing is that as you know, the older equipment tends to have a little bit of less reliability because of its age, so they have to work. Airlines probably ultimately will start investing a little bit in maintaining conditional fares, so they can make sure that they can complete some of these additional routes that they're putting out there.

So, we would anticipate some sort of potential in that area..

Great.

And just not the whole bun -- on the industrial contracts but just real quickly, can you remind us on the wind down of that program? Did the customer go somewhere else or I don’t think so, I just want to confirm that or they just? They completed their program -- didn’t really -- there was no more demand for any particular reason or..?.

Right. You are correct. The customer, we didn’t lose the business to a competitor. Actually what happened there, and I think I mentioned some of these, which you are already doing in the fourth quarter call. The manufacturer of that particular product didn’t know how hot it was going to run.

And as it turns out, it ended up running cooler than they had anticipated. So that eliminated the need for this -- basically this industrial product that we provide. And so that has gone away. We completed our orders according to the schedule.

Unfortunately, certain replacement demand did not kick in yet and we have been -- we’ve received commitments that we are going to be receiving those orders, but unfortunately some of that business hasn’t get kicked in and has slipped as often new products do it slipped a little bit to the right.

But most of that shortfall will ultimately be made up by aerospace products. And so actually the timing is quite good as demand for one has decreased, the demand for our aerospace products fulfilled, but unfortunately there is a little bit of a gap there.

But you are correct, we did not lose that business to a competitor, that product actually went away..

Got you. And then just last question just maybe for Victor. The operating cash flow statement highlights that there was $1.5 million FX expense that you credited back on cash flow. Did that -- I assume that did flow through the P&L, is that above the line or….

I am going to -- Carlos will take that question..

So the question, could you repeat the question again, I’m sorry?.

Just on the -- there was I think $1.4 million FX currency impact. I saw on your operating cash flow that you credited back to operating cash flow. I was just trying to figure out where that came through on the P&L statement..

Sure. So that related to partial funding of the Aeroworks acquisition and we borrowed in euros here in the U.S. And so the timing of borrowing at one FX rates through to the end of our quarter rate was that the result -- was that benefit to your speaking of and that is a reduction of our SG&A expenses in our statement of operations..

Got it. Great. Thanks..

And then on to the sales and the cash flow the pre-tax number by the way..

Got you. Appreciate it..

You bet..

By the way if we ever decided to repay borrowing dollars and repay the euro funding that would become a real cash benefit..

All right. Got you. Okay. Great. Thanks..

Your next question is from Tyler Hojo with Sidoti & Company..

Hi. Good morning, everyone. Just going back to the guidance for a second, in terms of the topline guidance, 8% to 10% growth, I certainly understand that the acquisitions were included in that number when you guided in Q4.

Can you just remind us what the organic growth rate is that’s embedded in that guidance?.

So Tyler, this is Carlos. As we stated, we haven’t changed organic growth rate. We think on a weighted average in the FSG, organic growth will approximate roughly 8%. And we’ve anticipated roughly low-single digits to maybe mid-single digits for ETG organic growth..

Okay. Got it.

And just as we sit here today, I know Larry talked about having a really robust acquisition pipeline, is there anything else that’s kind of on the horizon that perhaps is included in this number?.

Well, there is nothing included in this number other than a lot of sweat and hard work. We are working very hard. Our diligence teams are deployed. Larry has us working overtime and we see a very robust pipeline and a lot of opportunities for the company on a go forward basis.

But to caution you that statement you can never guarantee any things going to close. But I will tell you that we see the market for acquisitions opening up and we see businesses out there that sit our profile and that they look very attractive to us at this point..

Okay. Just a question on that topic since you brought it up. The last two deals you did were in FSG, are you seeing more in FSG? Or I mean historically, you’ve I think done a little more on the ETG, that’s….

I think it’s kind of spread across the board. We see them in both groups. As you know, we are opportunistic buyers. And it’s not something that we say we are going to just look at FSG or ETG. We make acquisitions as they come available.

But I would say at this point, they are kind of evenly spread out, the opportunities, they are kind of evenly spread out..

Yeah. okay. Good..

The most important factor is that we had gone for a little bit of dry spell with drop of interest rates and we discussed this on prior calls. And now we are seeing that sellers are coming back into the market at realistic prices and not the 12 and 14 multiples that some people are dreaming about and some deals to maybe get done.

So I guess people got realistic and that they are putting companies for sale at their -- what I would call fair prices that can create a win, win for buyer and seller..

Okay. Great. Thanks. And maybe just one for Eric.

Just sorry to do this, but going back to specialty product or industrial, when are you going to anniversary that, is it going to be Q3, Q4, I know it’s back half, but it’s sort of kind of rolling off of that?.

This is Carlos. That’s a very good question. That drag won’t be totally off until the fourth quarter, actually the end of the fourth quarter.

We started having impact, a little bit of an impact in the fourth quarter of '14, but we are going to have with regard to the industrial products negative comp for the first three quarters at sort of the similar rate as we had in the first quarter.

And in the fourth quarter, the impact will be lesser, will be down, and actually by the first quarter of next year, our industrial product sales should be up as the newer equipment kicks in..

Okay. Great.

And just lastly on industrial specialty products, was there something particularly good about those margins, or was just kind of the drop in segment margins more to do with kind of decrementals on the volume?.

Yes. It was really due to decementals on the volume, I would say it probably consistent with our other margins and similar products, but we did have the excess capacity. We had excess labor costs. We had excess facility cost, all sorts of costs that we couldn’t eliminate quickly enough.

And that’s what really impacted our operating income as well as the operating income margin. It was all due to the specialty prices to the drop in industrial products and otherwise the operating income would have been up and the operating margins would have approximated what they were in the past..

Okay. Great. Well, that’s all I had. So thanks a lot..

Thank you..

Your next question is from Michael Ciarmoli with KeyBanc Capital..

Hey, good morning, guys. Thanks for taking my questions..

Good morning, Michael..

I don’t know who this one is for. But if we look at the guidance, the 8% to 10% growth, how should we be thinking about the remainder of the year? I guess specifically, what drives the growth acceleration in the remaining three quarters? You are still going to have the industrial headwind. The acquisitions are obviously baked into that growth rate.

So what really creates the step up? I mean you are going to have to see high-single digits and then low-double digit growth to meet the revenue guidance. So I am just wondering if there is -- if its airline behavior or you’ve got line of sight into the order flow, but if you can just give some color..

Michael, I think the growth rates that we’ve projected are achievable most of the -- from my perspective, we are probably going to see a little bit easier comps in the second half of fiscal '15, which will accelerate some of the perception of that growth. It’s going to be principally driven by our existing businesses.

We don’t factor in acquisitions into these growth targets. And we do see a lot of tailwind in the commercial aviation business right now. As Eric mentioned in his prepared comments, we did see a 5% organic growth in the first quarter and that was up against almost the 19.5% comp from Q1 of last year. So we are seeing nice volume growth.

Our customers are behaving as we expected, and we do believe that the 8% to 10% growth ex any acquisitions is achievable still within our reach..

Okay. That’s fair and that’s a good segway. You mentioned the 5% organic growth in aero in Flight Support against that tough comp. You’ve got a tough comp next quarter.

I think this is one of the first time you pashed out just the aero growth? Can you give us a sense how that 5% trended either sequentially from last quarter or just how we should be thinking about that aero component growth in relation to the industrial? I mean, is that that 15.4% comp that you have in the second quarter of ’14, is that all aero defense growth? I’m assuming that that was beefed up a bit by the industrial..

Most, I think, as Eric mentioned earlier, that the industrial for at least Q1. This year in rough numbers is roughly cut in half in Q1 of ’14..

Right..

And that was previously explained. So we’re compelling on top of the tough base in the commercial aerospace and the FSG. So I don’t want to discount the fact also Michael that the ETG had some nice growth for the quarter and they had nice growth both in commercial aero, Victor previously mentioned, as well as in the medical space side of the business.

So, I think, to sum it up, absent the expected decline in the sales associates some of our industrial products, which mask what I think was what we consider to be a pretty good quarter in many respect. I think, what I mentioned earlier, it was a little way ahead of our internal estimates for Q1 of ’15..

Got it..

So we don’t see this is being a pattern if you were to some sort of major concern, in fact it was as expected..

Okay. Okay. That’s fair. And then maybe just shift into ETG. Victor, could we get an update on the fact that of Lucix. I know they had, they were doing it with quality, startup issues and satellite programs.

It looks like satellite market in general, order flow starting to pick up, so maybe just some color there? And I think the other one, just on the ETG margins that this had been a mid 20% margin business, when we go back a couple years? How should we be thinking about the margins going forward? I mean, is this still a mid 20% business?.

Yeah. Sort of taking in a reverse order that, this is Victor here. Taking in reverse order, I would say, yes, to your question on margins somewhere in a mid 20s and maybe upper, but it really is very sensitive to product mix. It’s also sensitive to the acquisition we make.

Keep in mind, of course, that we got about give or take 400 basis points of amortization intangible. So when we evaluate the business on what it really is generating just in terms of true operations, it’s about 400 basis points higher typically. And that’s if you evaluate the business on those term, they’re basically serves a very healthy businesses.

In terms of Lucix, that is -- it is doing better.

I think you may recall you said on the last conference call that we thought it would continue to improve over the year, not unfortunately in a linear fashion, but overall and I think that’s happening and that we would expect as we get the later this year, whether its fiscal year or calendar year, so that a little too granular for me.

But I think as we get there, we’ll find ourselves in continuously better shape there. The major technical issues that they had have really dissolved into, what I would call the run of the mill garden variety ones that I think every business sees over the course of its life, so the major ones I think have been resolved that appears.

And I think you're right, there's more activity in the satellite market, let see how that translates into orders for us there. At the moment Lucix is in talking about margins a little bit of a drag on our margin still, frankly, below our average.

And hopefully, as things continue to improve there that will change and hopefully at least get to our average..

Great. That’s perfect. That’s all I had guys. Thanks very much..

Thank you..

Your next question is from Sheila Kahyaoglu with Jefferies..

Thank you and good morning. Thanks for taking my question. I guess these ones for Victor and just to elaborate a bit on the last question. Even if we add back the $4 million of the benefit from Q1 of last year, the volume incrementals were pretty low this quarter.

I guess, I know you said margin should stay in the mid 20s, how do we think about volume incrementals, are they 20% this cycle versus 40% last cycle? If you could give us a little bit more color there?.

Sure. This is Victor. I don’t know what you mean volume incrementals..

I guess, just on the 2% organic growth, the incremental was about 5% the drop through on that organic growth. It was fairly low, I guess, is my point. Even if we add back that $4 million from Q1 of ’14. So I was just wondering if there was a mix impact whether certain product line and end market has lower margins..

Yeah. I think that, I mean, if you look at where we are for the full year, we’re sort of targeting in that low 20s range in the margin and that’s where it will come through..

Right. Okay.

So it’s not necessarily that Lucix might be well below average and that’s kind of what’s dragging it down, or it’s -- the aerospace doesn’t assist lower margins versus defense in the space?.

The businesses have different margins and so at any point in time, you find one that may have sort of a higher margin being stronger, it is a typical kind of mix thing.

And then at another point in time, you find ones that have the lower margins stronger than you have an underperformer, let’s say like Lucix have been and it all kind of works into the mix. We don't really look at it on a quarterly basis so much in the ETG. Going back many years, a lot of people heard me say this.

We are really very focused on the course of the year and so things can swing around pretty widely over the course of any years, of any year..

Okay. That’s helpful. And then Eric, I guess this one’s for you, again on margins.

Should we expect them to snap back because it seems like you’re cutting back cost given the specialty products line product cutoff? Did the margins snapback in the second quarter or it’s more second half of ’15?.

Yeah. We anticipate the margins increasing probably in the second quarter, but definitely more in the second half of ’15. This drop in margins was entirely attributable to the aforementioned industrial, the completion of those orders. So, we do anticipate the margins to snapback in the second half, definitely in the second half of the year..

Okay. Thanks..

Thank you..

Your next question is from Jonathan Morales with Canaccord..

Good morning, guys. I believe my questions on margins have already been addressed, but I do have one quick question on FSG.

Regarding distribution and sort of different types of parts, so surplus new PMA, do you see any trends changing maybe now that oil prices are a lot lower?.

With regard to the PMA and the new parts distribution, that business is quite strong. We have had some challenges and I think the industry in general is having challenges in the spare parts redistribution, so the used parts business because…..

Correct..

…since newer aircrafts, they are being parted out, that market has become a lot tougher. So, we are seeing headwinds I think, consistent with the industry in that market. Again, it’s a relatively small percentage of our FSG revenues, but definitely that’s the one that would have the most headwinds as of now..

Great thanks. That’s all I need..

Thank you..

Your next question is from Chris Quilty with Raymond James..

Thank you. Two follow-ups on the acquisitions front. First, can you give us perhaps a little bit of a background and some of the specific benefits you expect to get out of the Aeroworks acquisition? And then just a follow-up on the acquisition pipeline.

Anything within the pipeline that you would judge as either larger acquisitions, or perhaps a horizontal move, something out of the ordinary or is it mostly the same stuff?.

Chris, this is Eric. I’ll be happy to take this question. With regard to Aeroworks, Aeroworks has significant operations in Thailand and Laos. They are really the low cost manufacturer in particular products in which they operate. And we are excited because it gives us the opportunity if some of our customers want low cost manufacturing.

It gives us readymade low cost manufacturing. Actually, our partner in that business was with a much larger firm and had tremendous experience in the international and low cost manufacturing marketplace. We have spent decades in that area, frankly learning on somebody else’s dime.

And over the last 15 years, he built Aeroworks from scratch and really had learned a lot of lessons and we’ve got a very efficient well-run operation in that area. So if we had tried the greenfield, that there is no way that we would end up with these kinds of results.

He has been there for 15 years and really just did an incredible job and he’s a great operator and strategist.

So, we are excited about what that means specifically for the Aeroworks’ customers, but also for the rest of the HEICO network, because we now have hundreds of people in that area and opportunity to -- if so desire to manufacture products over there.

It also expands our metal parts business, as well as some additional composite technologies and gives us an operation, actually two operations in the Netherlands. So we have Aerospace manufacturing now in Europe, as well for those customers who want that option.

With regard to the acquisitions that are out there, we are looking at all types of businesses as we mentioned before on the call, we’ve never been as busy as we are today in terms of acquisitions. I think the word has sort of gotten around that HEICO is definitely a preferred acquirer. And we are very excited about a number of these opportunities.

You don’t know how many are going to get completed, but we have never had more acquisitions this far long in the process in our history. So we are very excited, it gets us into many areas and it’s really consistent with our previous strategy..

Okay..

We’ve got in the past..

Great.

And I guess on that note, Carlos, can you just give us a review on the balance sheet side about following capacity where you are comfortable with leverage, where you are looking at to borrow on the grid?.

I think Chris, it’s Carlos. I think borrowing capacity is entirely dependent on the cash generation of the target.

So from a leverage perspective right now we have plenty of capacity as Larry mentioned in his earlier comments we are a tick under 1.4 leverage on trailing 12 EBITDA, would we go higher to three or four times leverage from that perspective we would do that, but it would have to be in a situation where we start to pay back at that investment coming down very quickly.

I don’t think it’s in our D&A as in organization to get too over extend from a leverage perspective. But if we feel confident that the cash generation is a target that we are acquiring, we’ll pay itself back relatively quickly or bring us to a more what I’ll call a normalized leverage ratio than we would do it..

Got you. Thank you very much..

Thank you..

[Operator Instructions] your next question is from Steve Levenson with Stifel..

Thanks. Good morning everybody..

Good morning..

Just a question in relation to fuel prices again. There’s certainly one factor deciding whether to retire an airplane or continue flying it. I am just wondering based on your experience how much more maintenance expenses are there for 20-year-old plane versus a 10-year-old plane something along that.

Is it necessarily equal or is it more frequent, is it a great number of parts or just looking to see what your experience has been?.

Steve, that’s a very good question. With regards specifically to the parts, the newer the aircraft actually the more expensive the parts in general. However, as you know, they require fewer of them.

So I think that as the older aircraft roughly, let’s just say the 20, 25-year-old aircraft that had been planned to come out service as those remain in service in order to maintain the reliability of the aircraft to be able to have say 99% or 99.5% completion. They need to be able to hold more components out in the field.

So occasionally when something goes bad, they can fix it. So I don't know the specific, if you with hourly cost but I do know they are going to have to requisition and allocate more components out into the field in order to support some of the order equipment. So I think you’ll see somewhat of a one-time increase in that area.

Combining with the fact that the part outs have slowed down, so you are not seeing as much -- that business is becoming a little bit tougher. So they are not just going to be able to take old units -- old line of replaceable units off of aircraft as easily.

They are actually going to have to overhaul some of the stuff that probably would not have been overhaul..

Got it. Thank you. I am sorry, go ahead..

No. So I hope that answers your question..

No. That’s great additional color. Thanks..

You’re welcome. Thank you..

Your next question is from [René Plessner] [ph], Private Investor..

I am a private investor and I’ve done very well. Thank you. I’ve always looked at HEICO on an annual and longer basis.

So I totally understand why you don't give quarterly guidance should I be thinking the same now? And let me just add my own color which is you've done phenomenally for 20 years, is there any reason you shouldn’t continue to? And thank you for everything you've done..

René, well thank you very much for your complements. They are much appreciated. And we think that it’s really business as usually. We focus on the longer terms as you have indicated. We don’t give quarterly guidance as I’m sure everybody on this call understands because we can’t predict what’s going to happen from quarter-to-quarter.

We feel confident that we can continue our growing at least for the next three to five years. And we can grow 20% forever. We understand that. But I think in the foreseeable future we have a good opportunity to continue. As our revenue is little lower $1 billion to $1.2 billion or $1.3 billion whatever it is. We still have room to grow.

And we do focus on the long-term. And as you know, being a long-term investor in HEICO as you’ve said done very well, we have to look at a long-term and plow back money in R&D and look to the future. And we just can’t go quarter-to-quarter and we don’t. So I think the outlook is still quite good, and that’s all I can say.

But I have great confidence that we’ll continue doing. We are not changing our strategy. We are not doing anything different. And we are focusing on high margin as we always do, strong cash flows and we will just try to continue running the business the same as we have..

And I have total confidence you’ll continue to do so. And thank you..

Thank you very much, René Plessner..

[Operator Instructions] Your next question is from Jim Foung with The Gabelli & Company..

Hi. I just have one question about your pipeline of acquisitions. Your revenue guidance for this year, 8% to 10%, does that not include any future acquisitions? That’s correct, right..

That’s correct..

So maybe you could just talk a little bit about your pipeline. I guess maybe you can just rectify for us as some of these acquisitions close this year.

What do you think is the revenue range from current potential deals that could close and you say will be accretive to the earnings? So there will be potential upside to the 18% margin that you’re forecasting for this year..

Well, let me say this. Number one, I have no idea -- truthfully no idea, which one of these transactions will close. I’m highly confident that we will close some of them. I’m also confident that we won’t close all of them, because that’s just the way this thing works. But I couldn’t predict which ones will close and give you revenue number.

Similarly, I don’t know what the margin improvement might be as a result of these transactions. They would all be good margin. I don’t recall that we have any transactions that should reduce the margin. But it is possible, and I’m not saying it’s not -- it’s possible that we may make an acquisition into the first couple quarters.

We would see margin erosion until in that activity and that would just by arithmetic bring down the overall margin of whichever group that was in. So I would think the margins would then recover as we put our management style into it and get it back, because we are not buying companies to reduce our overall, say 18% margin.

But to answer your question at this moment is, Jim it’s really impossible because we don't know which of these companies transactions will be go through. I don't know, I can’t answer it..

Okay.

But over 12 months period, this upside to the earnings because the acquisition would be accretive and you get the revenue bump as well?.

That I feel pretty confident that that is an accurate statement. We're conservative, so we don’t build it in. But I definitely think what you said is correct..

So, on a run rate basis just upside to your earnings, okay..

I think so. I hope so. But we don’t want to step out and say that at this moment. But I would hope so and that’s clearly what our strategy is. That’s clearly -- we succeeded in doing it in the past and we’re trying to do it again..

Okay. Great. Thank you. That’s all I have..

Thank you, Jim..

[Operator Instructions] And we do have a follow-up question from Michael Ciarmoli with KeyBanc..

Thanks again, guys. Thanks for taking the follow-up. Eric, just a real quick one point of clarity. I kind of missed your comments. Did you say you’re starting to see some of the airlines push out the retirements? Or did you say you think that is what’s going to happen? I just didn’t hear you clearly..

We have been seen a little bit of it..

Okay..

A little bit of pushing out of some retirements and we want to be careful or not come across. This is a major trend right now. We have seen a limited amount of that. There is certainly more discussion about that.

But as I said, I think the airlines want to see a little bit longer sustained period of lower fuel prices before they make a major commitment to do this. We are not requisitioning for additional products in case this happens and we will be ready to support it, but we have not built it into our forecast..

Perfect. That’s helpful. Thanks, guys..

Thank you, Michael..

Thank you, ladies and gentlemen. That does -- I will now turn the conference back over to Mr. Mendelson for closing remarks..

Larry Mendelson:.

. :.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect..