the severity, magnitude and duration of the COVID-19 pandemic; HEICO's liquidity, and amount, timing of cash generation; lower commercial air travel caused by the pandemic and its aftermath, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase to our costs to complete contracts; government 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 and sales growth; product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales; our ability to make acquisitions [Technical Difficulty] Parties receiving this material 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 Forms 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 the extent requirements by applicable law. I now turn the call over to Laurans Mendelson, HEICO's Chairman and Chief Executive Officer. Please go ahead..

Connie, thank you, and good morning to everyone on the call. We thank you all for joining us, and welcome you to the HEICO third quarter fiscal '22 earnings announcement teleconference.

I'm Larry Mendelson, Chairman and CEO of HEICO Corporation, and I'm joined here this morning by Eric Mendelson, HEICO's Co-President and President of HEICO's Flight Support Group; Victor Mendelson, HEICO's Co-President and President of HEICO's Electronic Technologies Group; and Carlos Macau, our Executive VP and CFO.

Today, my comments will address our consolidated Q3 results, acquisitions and accomplishments, followed by a presentation of the segment results from Eric and Victor, HEICO's Co-Presidents.

Now before reviewing the quarterly results, I would like to take a moment to thank all of HEICO's talented team members for their contributions to another remarkable quarter. Their commitment to producing the highest quality products for customers resulted in excellent quarterly financial results for all HEICO shareholders.

And I remain very optimistic in the future for our company. Summarizing the highlights of our third quarter.

I will tell you that consolidated third quarter fiscal '22 net sales and operating income represent record results for HEICO driven primarily by record operating results within the Flight Support Group, mainly arising from continued strong rebound in demand for our commercial aerospace products and services.

In addition, this marks the eighth consecutive quarter of sequential growth in net sales and operating income for the Flight Support Group. Consolidated operating income and net sales in the third quarter of fiscal '22 improved 28% and 21%, respectively, as compared to the third quarter of fiscal '21.

These results mainly reflect 13% quarterly consolidated organic net sales growth as well as the favorable impact from our fiscal '22 and '21 acquisitions. Consolidated operating margin improved to 22.6% in the third quarter of fiscal '22, and that was up from 21.4% in the third quarter of fiscal '21.

Net income attributable to non-controlling interest was $10.5 million in the third quarter of fiscal '22 as compared to $6.8 million in the third quarter of fiscal '21. And of course, the increase principally reflects improved operating results of certain subsidiaries in which non-controlling interests are held.

We continue to estimate the annual allocation of earnings to non-controlling interest partners to approximate 7% to 8% of percentage of pretax income. HEICO's effective tax rate was 27% in the third quarter of fiscal '22, and that compared to 15.7% in the third quarter of fiscal '21. I want to comment on this tax rate because it's a major issue.

And later in this call, Carlos Macau will explain the complexities between actual tax that we pay in cash and the tax provision required for GAAP. But suffice it to say, from an operating point of view, in my mind and management mind, our tax rate is really 21%.

And for the analysts out there who are on the phone, if you apply the 21%, which is what we estimate to be our annual tax rate, you will find that the earnings per share for the quarter would be $0.65 to $0.66.

In my opinion, and Carlos' too, and he'll go into detail, the additional 7% difference between 21% and 27% will most likely never have to be paid. And Carlos will explain why that is. And I just wanted to point it out very, very clearly.

The increase in our tax rate reflected a 5.3% unfavorable impact from tax-exempt unrealized losses in the cash-surrendered value of life insurance policies related to the HEICO Leadership Compensation Plan, and that was recognized in the third quarter of fiscal '22.

And that compared to the tax-exempt unrealized gains recognized in the third quarter of fiscal '21, plus a 2.6% unfavorable impact from a larger income tax credit recognized in the third quarter of fiscal '21 due to higher qualifying R&D expenses as compared to the third quarter of fiscal '22. And that's a big mouthful. It's very complicated.

But the simplistic answer, as we look at it, again, is the real tax, in my opinion, and management is 21% for the quarter. We now expect the full year effective tax rate to be between 20% and 21% of pretax earnings.

The increase in our estimated annual effective tax rate, up from prior year estimates of 18% to 20%, is directly attributable to overall stock market declines causing unfavorable investment results within the HEICO Leadership Compensation Plan during the third quarter of fiscal '22.

Consolidated net income increased 7% to $82.5 million or $0.60 per diluted share in the third quarter of fiscal '22, and that was up from $76.9 million or $0.56 per diluted share in the third quarter of fiscal '21. Liquidity and cash generation was very strong.

Cash flow provided by operating activities increased 20% to $149.2 million in the third quarter of fiscal '22, and that was up from $124 million in the third quarter of fiscal '21. This, despite our continued investments in working capital to support strong orders and our increased consolidated backlog.

We now expect capital expenditures for the full fiscal '22 to approximate $35 million, and this is down from prior estimates of $40 million. HEICO's total debt to shareholders' equity ratio improved to 9.9% as of July 31, '22, and that was down from 10.3% as of October 31, '21.

Our net debt, which is total debt less cash and cash equivalents of $112.2 million as of July 31, '22, compared to shareholders' equity ratio improved to 4.5% as of July 31, '22, and that compares to 5.6% as of October 31, '21. Our balance sheet is very, very strong.

Net debt-to-EBITDA ratio improved to 0.2x as of July 31, '22, down from 0.26x as of October 31, '21.

We have no significant debt maturities until fiscal '25, and we plan to utilize our financial strength and flexibility to continue aggressively pursuing high-quality acquisitions of various sizes to accelerate growth and to maximize shareholder returns.

In July '22, we paid our regular semiannual cash dividend of $0.09 per share, which represented our 88th consecutive semiannual cash dividend.

In July '22, our Flight Support Group acquired Accurate Metal Machining, a leading manufacturer of high reliability components and assemblies in the aerospace, defense and semiconductor equipment subsystem supplier markets. Accurate employs approximately 250 people at its Cleveland, Ohio, production facility.

In July '22, we announced the agreement for our ETG Group to purchase Exxelia International, which represents HEICO's largest ever acquisition.

Exxelia is headquartered in Paris, France, and is a global leader in the design, manufacture and sales of high reliability complex, passive electronic components and rotary joint assemblies who are mostly aerospace and defense products.

Exxelia is expected to generate approximately EUR 190 million in revenue during calendar year '22, and has 11 advanced locations worldwide to support its over customers. The Exxelia transaction is expected to be completed in the first quarter of fiscal '23.

In August '22, a subsidiary of the ETG Group acquired Charter Engineering, located in Pinellas Park, Florida. And Charter designs and manufactures RF and microwave coaxial switches for the aerospace, defense, commercial and automated test equipment and instrumentation markets.

In August '22, we announced the ETG Group acquired Sensor Systems, and that's based in Chatsworth, California, and is one of the world's largest leading designers and manufacturers of airborne antennas for commercial and military applications.

Sensors antennas are found on nearly all large commercial transport aircraft built in the last 50 years, along with numerous business and military aircraft. We expect all of these acquisitions to be accretive to our earnings within the year following their respective close date.

At this time, I'd like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group to discuss third quarter results of the Flight Support Group..

Thank you. The Flight Support Group's net sales increased 39% to a record $330.3 million in the third quarter of fiscal '22, up from $237.1 million in the third quarter of fiscal '21.

The net sales increase in the third quarter of fiscal '22 reflects strong organic growth of 25% as well as the impact from our profitable fiscal '22 and '21 acquisitions.

The organic growth mainly reflects increased demand for the majority of our commercial aerospace products and services resulting from continued recovery in global commercial air travel as compared to the third quarter of fiscal '21.

The Flight Support Group's operating income increased 68% to a record $70.8 million in the third quarter of fiscal '22, up from $42.1 million in the third quarter of fiscal '21.

The operating income increase in the third quarter of fiscal '22, principally reflects an improved gross profit margin, mainly from increased net sales across all product lines, and efficiencies realized from the higher net sales volume.

The Fight Support Group's operating margin improved to 21.4% in the third quarter of fiscal '22, up from 17.7% in the third quarter of fiscal '21.

The operating margin increased in the third quarter of fiscal '22, principally reflects a decrease in SG&A expenses as a percentage of net sales mainly reflecting the previously mentioned efficiencies as well as the previously mentioned improved gross profit margin.

Now I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the third quarter results of the Electronic Technologies Group..

Thank you, Eric. The Electronic Technologies Group's net sales increased 2% to $244.2 million in the third quarter of fiscal '22, up from $239.5 million in the third quarter of fiscal '21. The net sales increase principally reflects the impact from our profitable '21 and '22 acquisitions as well as 1% organic growth.

The organic growth mainly reflects increased demand for our other electronics, space and medical products, partially offset by decreased defense product sales, which seems to be common among defense companies this year with U.S. government outlays lagging.

The increase in nondefense revenues underscores these other product lines strength in the quarter. The Electronic Technologies Group's backlog remains healthy with a roughly 16% increase since October 31, '21, and it remains elevated, reflecting strong orders.

However, we've experienced increasing delays in receiving components and raw materials from some suppliers, adversely impacting some defense products, planned production and shipment during fiscal '22 and during the quarter.

We estimate somewhere around $25 million of our revenues moved out of fiscal third quarter into future periods, mostly estimated to be in the fiscal fourth quarter due to supplier or even -- supplier issues or even customer ordering delays. Notably, our book-to-bill ratio increased in the quarter and year-to-date.

The Electronic Technologies Group's operating income was $68 million in the third quarter of fiscal '22 compared to $69 million in the third quarter of fiscal '21. The slight operating income decrease principally reflects a lower gross profit margin, mainly from the previously mentioned decrease in defense product sales.

The Electronic Technologies Group's operating margin was 27.9% in the third quarter of fiscal '22 compared to 28.8% in the third quarter of fiscal '21. The lower operating margin principally reflects the previously mentioned lower gross profit margin, and an increase in SG&A expenses as a percentage of sales.

I turn the call back over to Larry Mendelson..

Thank you, Victor and Eric. As we look ahead to the remainder of fiscal '22, we expect global commercial air travel to continue on a path to recovery, despite the potential for additional pandemic variants.

We remain cautious and optimistic that the ongoing worldwide pandemic vaccines and boosters rollout will continue to positively influence global commercial air travel and benefit the markets we serve.

While signs of stability in global commercial air travel continue to surface, it still remains very difficult to predict the pandemics path and effect, including factors like new variants, vaccination rates, potential supply chain disruptions and inflation, which may impact our key markets.

Therefore, we feel it would not be responsible to provide fiscal '22 net sales and earnings guidance at this time. In closing, I'd like to again thank our incredible global team members for their continued support and commitment to HEICO and its shareholders.

Together, we continue to win in the marketplace, exceed our customers' expectation and build a larger and more successful company for the future. Your contributions are what makes HEICO an excellent company. I would now like to open the floor for questions. Question-and-Answer Session.

[Operator Instructions] And we'll take our first question..

Maybe just first question, Larry, if we could just kick off just -- and I realize you haven't closed this acquisition yet, but just on the Exxelia acquisition, obviously, your largest product just ever, sounds exciting. Maybe you can give us a little more color on that? It looks like complementary markets, I pick up you're entering Europe.

So maybe that's a nice advantage for you maybe on the defense side. And other -- maybe question one there. And then maybe possible, are there room for improvement on the operating side.

It sounds like maybe margins are not quite where you guys are? Or is it just sort of a mix issue there that kind of keeps that down?.

So I'm going to let Victor furnish most of the color. All I can tell you is that Victor and I and the team have been looking at Exxelia for -- I can't remember, four years by -- I don't remember, we always like this company. We got to know the management. We got to know about the company.

And we feel that this will be a great adjunct or addition to the ETG Group. I think their margins are good. They're not the extraordinary 30% margins that we like to see in ETG, but we have good margins. I think we have an outstanding management team there. And I think the opportunities for expansion through acquisition are very realistic.

So I think this will be a great addition to the HEICO Group. And I'll let Victor get into some of the more details that he could explain..

Hey, Larry, those are good questions.

I think until we're completely done with the regulatory processes, hold off on kind of predicting anything there other than to say that the same management will continue running the company, the people who are there will be there, and they'll be implementing the plan that they've laid out in their own internal growth plan, which certainly impressed us, and we remain very excited about the company..

Okay. No, fair enough. I think the wall you got the mic there, just a couple of just questions for you. The quarter obviously looked pretty good if you take out that sort of $25 million push forward on sales. And maybe just give us a little more color on what's driving this growth with defense. I think you said mentioned being still down a little bit.

That's half of your -- I guess close to half of your revenue there in your segment.

So is it just a mix of space, medical, general industrial? What's driving that pretty good growth ex defense? And then visibility on defense specifically, do you see that improving as we go out over the next few quarters?.

Yes. So kind of in the order that you raised, those are also good questions. We had very nice growth sort of across the board in most of the -- or all the other markets, some stood out, certainly in percentage terms, for us, space, medical, other electronics markets were particularly strong in the quarter in sales.

Aerospace was very nice and telecom, other things that we serve, even some of the smaller markets, and some of the other really small markets or like marine, also very strong. So kind of across the board in the other markets. On defense, as I mentioned in the introductory remarks, we're all seeing that the DoD outlays have been lagging this year.

Nobody seems to really know why. There's a lot of different theories on this and so on. I -- my tendency is to be conservative and not believe that it's coming in the next 60 or 90 days that it turns. These things tend to take a little bit longer. That's why the year has worn on, we've been careful in our remarks.

No -- for the -- I don't know of any orders, or small amounts maybe here and there, nothing outside the ordinary, that's been canceled in defense for us. There are always -- by the way, in businesses like ours, of course, there are always cancellations and pull-ins and things like that, the normal noise level.

But referring to outside of the normal noise, I don't see anything unusual there. And what's happening is, as I mentioned, our book-to-bill has been growing and our backlog has been growing, so it confirms that they're not lost orders, and they ship at some point.

And I'm guessing, like I said in the call, some of those are going to be in the fourth quarter and some will be beyond..

Okay. Great. Just shifting gears real quest just to give Eric a quick shot out. Just on your revenue trends, obviously, they've been really strong. I assume that we obviously have to slow down as we're back to where it looks like to pre-COVID levels.

But can you just give us a little more color on airline inventory levels? And I imagine they're still below normal.

And -- how do we -- how do you sort of see the next that coming about? And just in terms of passenger travel, it does -- obviously, it's pretty much back to where we were, I guess, ex sort of business travel, I guess, that's still the lagging factor. But so just trying to see how you vision growth over the next few quarters from a high level..

Yes. All great questions, Larry. And I spend a lot of time thinking about this and talking to our folks about it. No question, our results have been outstanding. I think that we've captured market share. I know we've captured market share. We've got parts that other people don't have. I think HEICO is increasing in credibility in the industry.

We're viewed as a major industry participants and supplier. We're not the small PMA company that we used to be many, many years ago. So I think that credibility is very important, and we're viewed very much in a different light.

Having said that, North America is -- has returned basically back to the pre-COVID levels, so that's pretty close, with Europe a little bit behind. Of course, Asia is still lagging substantially, and Latin America is lagging somewhat sort of in between Europe and Asia in terms of the return to service. With regard to your questions about inventory.

We don't believe that airlines are stocking a lot of inventory. I think a lot of what we have supplied is going directly onto aircraft.

However, when you look at the industry in general, and I talk to our people about supply chain and what's going on, there's tremendous extension in the turn time, the quoted turn time to lead times for materials, parts, services, all sorts of things. So as a result, I think it's logical to assume that airlines are buying ahead of their needs.

I don't think they are -- they're ordering ahead of their needs. They're not necessarily building inventories, but they have had a very large demand in this return to service as they put aircraft back into service, they needed a lot of maintenance. So there's been a big increase there.

So when you factor all of this together, I think HEICO is going to continue to do very well. We've got to be careful. Obviously, 25% organic growth is outstanding. And we've done this now for quite some time. We're back basically to our pre-COVID levels. So I wouldn't anticipate this kind of growth to continue. We don't know. We're trying to figure it out.

Nobody tells you, well, I'm ordering more than I need because I'm worried I can't get it next year. So having done this for a long time, I'm cautious that there could be some of that going on. Now of course, that's going to be mitigated by the recovery in Asia and South America somewhat. So I think we're in a great place.

We're going to continue to do very well. But I just sort of cautious about getting extrapolating this too far forward, nobody knows..

And we'll take our next question from Sheila Kahyaoglu from Jefferies..

This is Ellen on for Sheila.

On your Sensor Systems acquisition, you paid in part with HEICO shares, what made you decide to use equity here? And how does that change the return profile for that transaction?.

So the reason for that is that one of the sellers of Sensor Systems would only sell because he wanted HEICO shares. And it really was as simple as that. We're very happy to give cash. We have known this seller for -- we have worked on that acquisition for over seven years. He -- the seller really love HEICO.

I was approached by many other companies, we believe, who offered more money, but he only wanted to sell to HEICO and he only wanted HEICO shares. And that was the only way we could make the deal, and we were happy to do so..

Great. And you've been pretty active with four acquisitions announced in the past month or so.

Is there anything that changed in the M&A market that allowed you to be more active? Or what drove that activity?.

No, I don't think so. I think we have often said that we make acquisitions when they become available to us.

I think perhaps -- in some cases, it might be that the market for acquisition loans by private equity was getting a little tougher, and private equity when they did their arithmetic found out that they couldn't match the terms that HEICO has on its credit line.

So they were -- in one or two cases, they couldn't really compete with us, and we were able to win the day. So I think that might have been part of it. But I can tell you some of these acquisitions, as I said, Sensor, we worked on for seven years. And it's just -- time had come..

And this is Victor. I would say it really is a question of timing in these deals that we closed and when they came available when we were able to reach terms. In most of the acquisitions we're working on now or we've announced, they were talking exclusively with us, and it's just when the timing became good..

Yes..

Awesome. And maybe just one more on ETG.

Do you have any visibility to when that $25 million of delayed revenue will be recovered? Is there something that you need to see in the market? Or how do we think about -- how much confidence you have in recovering any of that in fiscal Q4?.

Yes. Look, I think that our expectation -- our company's expectations is that the bulk of that will be in the fourth quarter, and then some of it will be, let's say, first, second quarter. I mean we don't see it being out that far. But what has happened is that the -- there's a shift that's going on.

So we have something that shifts from the second to the third, and then those things that moved into the third quarter shift, but then it was more -- it grew more in the third quarter, the amount that was, if you will, delayed, increased.

So as I said on the call that last quarter's call, I think I said that we thought in the first quarter, it was about $10 million worth of delayed shipments. And then in the second quarter, we estimated that grew by 50% to 70%, right, kind of in the $16 million, $17 million range -- $15 million to $17 million range.

And now we're estimating in the $25-ish million. So it's that growth in particular that we see. So I do expect a lot of the third quarter delayed shipments to ship in the fourth, but I expect some pushouts then in the fourth going into the first quarter. And I would hope at some point, those moderate.

What my expectation would be is first, they'll moderate, flatten out and then start moving down. But it's possible it moves down straight..

And we'll take our next question from Peter Arment from Baird..

Eric, can you maybe talk a little bit about maybe the size of your parts catalog today or the runway that you still see in developing parts? Because obviously, your organic growth continues to be incredibly impressive..

Got it. Yes, Peter. So our parts catalog in terms of PMA, I think you're referring to, is about -- we've got about 13,000 approvals. So it is really quite broad, and it covers many engines as well as all different ATA chapters.

So we're in fuel, hydraulic, pneumatic, electromechanical, avionics, wheels and brakes, structures, really interiors, all over the aircraft. So I think it's really a very diversified product line, and it's not focused on any one area nor any one competitor. And we like that approach very much. We think that, that really makes a lot of sense.

So then you combine -- what you asked about concerning the parts catalog, along with our line replaceable unit or component overhaul capability, and it really is quite large. And then, of course, you add in the distribution and it gets even larger. So we pretty much touch everything in the airplane for a whole variety of customers..

And Eric, do you still have the ability to kind of add more to that? I mean, now that you've gotten to such a large size in terms of 13,000-plus parts, do you still kind of see the ability to add a few hundred parts a year as you've done in the past?.

Absolutely. We're keeping our new product development spending levels consistent with where they've been in the past. And we continue to develop 300 to 500 new PMAs per year, a similar number of DER repairs. So we're continuing to increase the product range that we've got.

In addition, we've got a number of, I would say, extremely complex, critical products, which we offer, which we don't publicly speak about for competitive reasons. Sometimes our competitors know about them. Other times, they don't.

But we've been really very -- our team is phenomenal in finding all sorts of opportunities and figuring out how to engineer and how to do this stuff. And as far as I'm concerned, we've got the best sales force on the planet, and they're really able to get a lot of customer excitement and customers to work with us.

So customers trust us because the stuff we're doing is very complicated. And they've got to have a high degree of faith in HEICO. And that's why we take so seriously our quality organization and the engineering content that we put in to make sure that we're really extremely robust, very, very thorough.

And frankly, what we do goes beyond what's required in any of the regulations but it's something that we've done for 32 years because it's the right thing to do for our customers and to protect HEICO. So we spent a lot of money making sure everything is perfect. And frankly, that's why we've got the quality reputation that we've got. .

Thank you for that color. And just how do we think about, as wide-body activity starts to recover as going forward, we should see a pickup there. We're already starting to see some pickup in wide-body traffic.

How much of an impact will that have on overall FSG?.

Yes, it will be very helpful. I'd say Asia, a little bit of South America wide-body that's the upside from here. Most of our business, as I've mentioned before, is a narrow-body. Of course, cargo has done very well, and a lot of that cargo market is basically wide-body aircraft. So we've done very well in that space as well.

But I do think there's going to be additional demand, obviously, as the wide-bodies further return to service..

Okay. And just one quick one for Carlos. Expectations for the tax rate for the fourth quarter.

Do you have -- can you give us a little color there?.

Yes. I think you should plan on somewhere around 21% for the year. It could be 20% to 21%. I give you that number that's assuming that we don't have a catastrophe in the stock market. As Larry mentioned earlier, if we have broad losses in the overall stock market between now and our fiscal year-end, that could amplify our rate a little bit again in Q4.

But I don't -- I'm not in the business of predicting that. So that's where we stand right now..

And we'll take our next question from Ken Herbert, RBC Capital Markets..

Victor, maybe if I could first start off with a question on ETG. The last couple of years, you've had a nice sequential improvement in margins from the fiscal third to the fourth quarter.

Can you talk about maybe how we should think about margins in the segment this year considering there's clearly some recovery of part of what's been delayed with the normal seasonality -- seasonal benefit you get in the segment?.

Thanks, Ken. Thank you. This is Victor. It's a good question. I am not looking for an increase in margins. If that happens, that would be great. But my own planning, at least is to be more conservative on that and not assume an increase in margins in the fourth quarter at this point.

And then we're now in our budgeting process for '23, and we'll start thinking about those.

Of course, again, the '23 margins will be moderated from historical levels somewhat because of the Exxelia acquisition, which we've said -- we've talked about their margins being within our -- in our target range, but not at the top, more toward the bottom of our target range. So we'll start to think about those later..

Just on that point, for the base business, I mean, depending upon where this year ends up, it's hard to say, but I think your margins have been running sort of that 29-ish percentage to maybe 29% to 30% range.

Is there any reason in '23, excluding Exxelia, you don't get back to those levels?.

I don't know yet because I really have to see the individual budgets -- by the way, keep in mind that, that's, of course, the GAAP margin after amortization. So the businesses on their own are running about, what, 3, 4 points higher than the 5 -- I'm sorry, so about 5 points higher than that.

So if you're running at 29%, that's 34%; if you're running at 28%, that's 33%. And the....

I don't have….

So it's -- again, as I said on these calls in the past, it's sort of hard to go to somebody and say, you bump, you came in at 32% instead of 33% or 30% instead of 32% or 33%. So that's part of the challenge..

Ken, this is Carlos. Just to follow up real quick on Victor said, there are so many businesses in the ETG and it is a very mix sensitive segment. And with the little bit of the drag that we've had this year on defense, that has brought the margin down a little bit, but we've been running the last couple of quarters, 28%.

I think as a management team, we're very happy with that. And as Victor said, I think going into the fourth quarter, we'd be very happy if that maintained at that level..

Perfect. No, that's helpful. And if I could, just one for Eric. Eric, it's been a few calls now that you've called out sort of incremental opportunities as supply chains continue to stretch for new material into the aftermarket.

I'm just curious, as you get these opportunities as they come up, how much opportunity is there for you to really sort of scale the PMA offerings in a particular year or time frame? Or maybe how long does it take to go from identifying an opportunity to perhaps having a product in the marketplace? I mean how quickly can you take advantage of this share opportunity considering the broader supply chain disruptions in the aerospace side?.

Yes. A good question, Ken. I'd like to say that to develop, if you're speaking about a PMA part, typical cycle time from when we induct it until we have it available is approximately a year.

That can be as short as a couple of months, for something that's very hot and not that complex, to a couple of years for something that's on the other end of the spectrum, something that's super complex. So I would say what we're taking advantage of now is increased penetration of our existing product line.

So these are parts that we've had available for sale. There's no good reason why, frankly, more people aren't mind, and it just takes a while to get all this done. And as a result of having them, I think we're able to pick up market share. So I think it's really as a result of that.

Also, we were -- since we don't have a lot of leverage, and we make sure that we're very well financed within the company. Unlike others, we didn't squeeze our inventory as nearly as much as others.

And as a result, when demand came back, we've been able to satisfy it as opposed to others who have really been -- frankly, drained down their inventories. So I think that's leaving us in good place right now.

I would say the market share capture isn't as much from finding an immediate opportunity and developing it as it is stuff that we've already had in process for some time..

And we'll take our next question from Robert Spingarn, Melius Research..

I want to follow up on a few things that have already been asked. So Larry, I was going to start with you on M&A. You talked about the concentration of deals and just the random timing there. But is -- I thought your private equity comment was interesting.

Are we seeing a different pipeline now than we've seen in the past? And is the size of the transactions getting larger?.

I don't think so, Rob. I think it's pretty much business as usual. I mean in the past, the very large transactions normally went to private equity and other industry buyers at multiples that we just don't trade in.

So if they were trading -- and you know some of the ones I'm talking about 17x, 15x EBITDA and things like that, we have looked at these companies in the past, but we were unable to do that. I think now we're seeing a little bit lower -- so far, a little bit lower pricing because of interest rates. And I think that would normally be expected.

Private equity, I think, has to be a little more careful. We've been told by many bankers that private equity has to put in more equity and pay higher interest rates. Some of the banks, we have been told are really out of the ballgame for certain borrowers in private equity.

So I think this puts a little bit of pressure on the pricing and lets us participate. But I would say, overall, it's kind of business as usual.

And I can tell you that we have many, many deals that are in the pipeline that we're looking at, which is normal for us, but the question is, will we be able to close the deal, will the pricing be right for us? Will our due diligence show? This is really a great company as opposed to some hockey-stick presentation that a seller puts out.

And then when we start to dig in and turn over the rocks, we say, wait a minute. So I think the answer is sort of business as usual, may be a little bit better..

Okay. Eric, a couple for you. I just wanted to go back to this discussion of recovered from COVID. Because clearly, you said wide-body, we're not there yet.

I imagine there are certain regional areas where we're not fully recovered, and so notwithstanding the fact that you had record sales in the quarter, which I think were $6 million higher than the prior record quarter, right before COVID, it would seem to me that some of what got you there is share and new products, new customers.

Is there a way to calibrate what a recovered quarter would look like if you got that wide-body and you got everybody that you're missing in your sales? In other words, is a $330 million number closer to $400 million fully recovered?.

Yes, because we've got, obviously, some acquisitions in there. And -- so it is a higher number. I'm not sure what the number would be. Maybe it's -- I think we're pretty close right now. I'm just thinking for a moment in my head. I mean, maybe it's more like a $370 million a quarter, or $300 million.

And -- but that would be a record to record, that kind of thing, maybe $360 million would be record to record..

Right.

With the long lead times for spares, we're hearing the airline to discuss, have -- and given that many of these parts are sourced, are you seeing folks come in at a higher rate and asking HEICO to develop parts because they just can't get them from the OEMs?.

Yes. We are seeing definitely tremendous interest in our product line, a lot of trust and confidence in our process and our ability to develop things. We had our global sales meeting for the parts and repair businesses.

And I can tell you in my nearly 33 years of doing this, I have never seen such enthusiasm across all of the businesses across all of the regions, all of the people. And frankly, I just have to add, the team that we've got there has been doing this. Some of them have been there nearly 30 years, others 20, others 10.

But this is a team that's worked very, very well together for decades. And there's a lot of trust, a lot of confidence. It's extremely well led. And I really think we're seeing, if you will, tremendous internal synergy of being able to respond to our customers' request.

We don't have -- it's not like we've got a whole bunch of new people doing this for the first time. It's quite the opposite. It's people who really understand the capability, understand how to get things done at the customers, how to develop the parts, how to get it sold, how to get it bought.

And it's really, I would say, a very, very well-oiled machine as well as in our distribution business as well. I mean it's exactly the same thing. And I think these companies are very much hitting their stride. As I said, parts, repair and distribution. I should also add we had our global sales meeting for the distribution business.

And again, enthusiasm like I've never seen before as a result of market credibility with both our customers as well as our principles as well as really understanding maturity, just the team that's been together a long time can rely on each other. And so I think market share is a big part of what we are seeing.

My comments with regard to return to service, it's hard to figure out exactly where you are in that cycle. But I felt it was something that just had to be caught out because obviously, 25% organic growth can't be done forever..

Right. This actually brings up another question on the PMA side. There are a few new entrants, some folks trying to get in here, but you just talked about how you've got this well-oiled machine.

Does that concern you at all? Or are you just happy when PMA is growing overall? Do you expect this market to have a different growth trajectory post COVID?.

My comments, honestly, are focused on HEICO PMA. We have to be very, very careful. HEICO uses a process that we're very proud of that we've developed, and we really fine-tuned over the last 30 years. And I think that is a unique HEICO process. So I'm very reluctant to extend that in general to PMA.

I mean, what we see in terms of interest in our product, I think, is very much focused on our product. I specifically ask our people about any competitors in any of the spaces. And we don't believe that the competitors, frankly, are in the same area in terms of technical credibility, product breadth.

So I -- my sense is it's much more of a HEICO phenomenon..

Okay.

And then just quickly -- Victor, post all of the deals, could you update us on your end market distribution once these things are fully in?.

Yes. So they should be roughly comparable to what we have now. Defense may grow a little bit. But it's pretty much within the noise level of where we are with the acquisitions we've added. I guess Sensor Systems, that increases our commercial nicely. But overall, it's probably not a major shift.

And then there's some other acquisitions we're working on as well that would probably keep us close to around where we are now..

[Operator Instructions]And we'll take our next question from Robert Stallard from Vertical Research. .

Just a couple of follow up questions from me.

On the Exxelia deal, you mentioned it's biggest deal to date and then the margins lower than the overall ETG Group, but how would you compare this business compared to the other things that you see in this division? And does this mark any sort of change in your approach to the sort of deals you'd be willing to do in the future?.

Rob, this is Victor, it's very consistent actually with the strategy in ETG. The overwhelming majority of Exxelia's revenue is derived from components, sub-components, and down at that level, which as you know is a world we love. And that's part of what interested us in it first place or a big part of what interested us in the first place.

So, I don't really see it as a departure shift. It is larger for us, and that just happens to be because it was a larger opportunity that they have done a great job.

I will say one thing that is a little different in Exxelia than our typical acquisition is the management team has done an excellent job creating a unified platform, a unified company there. And so, as opposed to just the strict individualistic model that we've typically followed.

So this marks kind of our, if you will, participation in something that's more integrated and we're excited about that because I think it broadens our aperture a little bit. .

And then Larry, Victor, just to follow-up on your comment from earlier on how these delays seem to have gone from $10 million to $15 million to $25 million over the last three quarters. You seem to be suggesting that we're going to go the other way in the fourth quarter.

Is that accurate or do you expect this trend to continue?.

Yes, I apologize if, if I left you with the impression, I think we're going the other way in the fourth quarter. I'm not sure which way it will go in the fourth quarter. My comment to answer one of the other questions earlier was intended to convey that, I don't think it's going to suddenly reverse and that you're going to see this disappear.

I think that what's more likely to happen, this is just my opinion, is that at some point, it flattens out and then starts to reverse. But I would expect that in the fourth quarter, we will see some revenue that we had expected to ship, we had scheduled originally to ship in the fourth quarter move out into the first and future quarters.

While we ship in the fourth quarter, things that move from the third and, let's say, second quarters..

And we'll take our next question from Pete Skibitski..

Just want to start by talking about SG&A. It looks like you guys are getting some really nice efficiencies here year-to-date and particularly in the last couple of quarters.

So I was just wondering kind of what opportunities going forward are there for continuing efficiencies and to what extent they could possibly accrue to the FSG segment?.

So no, this is -- I'm sorry, Pete, this is Carlos. In the FSG in particular, we benefited by leverage on the fixed costs. So you're correct. Our spend relative to revenue growth has been stable. Therefore, the percentage has come down. And we pride ourselves on running efficient operations, not overspending on G&A-type activities.

I do believe that selling costs as revenues go up will continue to mirror that revenue growth. But overhead, things like that, we'll continue to catch efficiencies on. Same in the ETG, the ETG has had a slight increase in expenditures in the SG&A area relative to revenues.

A lot of that was due to the fact that we're not getting this year the growth that we typically are accustomed to.

And I think that, too, will cure itself as Victor just talked about as we into probably some more better times out in the future, particularly in the defense area, then I think we'll start catching those efficiencies again on the SG&A spend.

So a long way of saying that I believe overall for the company, our fixed costs in the G&A area are stable and low and that we will see selling costs increase proportionately with our sales volume increases..

Okay. That's helpful. Thank you for that. And just last one for me. When you guys talk about mix a lot in FSG, you talked about specialty products. In specialty products, I think, was up about 50% in the first half of the year.

I don't know what it did in the third quarter, but maybe you could talk about demand there kind of going forward over the next kind of six, 12 months in terms of what you're seeing..

Yes. Pete, great question. Demand was very strong. We did very well in the third quarter on specialty products.

It's important to note that whereas the aftermarket parts repair distribution has been on the rebound really since -- we've had extremely high organic growth rates -- I'm just looking for my numbers here, of -- if you just bear with me, of -- 32% -- starting in the third quarter of last year, organic growth of 32%, then 28%, 30%, 23%, 25%, very, very high.

The specialty products recovered later. So therefore, we are seeing greater growth right now out of the specialty products only because, if you will, the comps on parts and repair and distribution are becoming more difficult because we saw that recover -- the recovery sooner.

Of course, when COVID hit, the aftermarket was the one that took the biggest immediate hit because airlines really they needed the parts. Specialty products, continue to ship according to the orders. And so their bottom came later. So we do anticipate additional recovery in specialty products, we think we're doing very well in that section as well..

And we'll take our next question from Noah Poponak from Goldman Sachs..

Just wanted to go back to the ETG margin. I know earlier, you discussed some of the drivers of how it can move around, and what you expect moving forward, and the EBIT versus EBITDA. But I just want to make sure I fully understand what's transpired over the last year or two years. It's been six to eight quarters or so where it's down year-over-year.

And so if you just had to hone in on the one or two main drivers of that, what would that be?.

Noah, this is Victor. I would say that main driver would be -- the biggest driver, probably the defense mix. And so it's -- in a sense, that's mix, right? And the mix of products that we've been selling..

So if I look at it on a longer view where it's mid- to high 20s, if I'm just looking at what's happened over the last two years, it's sort of off of a tough compare from a mix perspective, and then the mix has just changed a little bit the last two years..

Yes. That's correct, I think..

Which items into the mix, like what's a better mix versus worse mix in the segment?.

Well, I've got to be careful because I don't want to get competitors a roadmap into the margins on particular products. I'd like to answer your question, but without breaking out what we don't disclose. I don't know Carlos....

I think, Noah, the one thing I would say to maybe give you a clue is, we have talked about over the last year or so that are other electronics, more industrial-type products that are not as specialized as, let's say, space or defense, have grown very nicely over the past 1.5 years, and that has tilted the mix a little bit towards those products, which have a little bit of a lower margin profile.

And so I think that's one reason why you've seen that. I think as ETG settles in the mix, once we get some of the -- really the defense outlays that Victor mentioned earlier, seems to be one of the things that is driving the shift in mix for us at least this year.

Because as Victor mentioned, we do have the orders, it's outlays and it's kind of the muck in the supply chain that's gumming everything up. And I think that delay in order has sort of hurt the mix a little bit for the ETG, which when that happens, we do have a little bit of softening in the rate.

But I will tell you this, as a management team, if ETG is kicking out 20% operating margins, I'm standing on the desk doing an Irish jig because that, as Victor mentioned, with the [heavy] amortization back, that's an ATM machine. That's a cash business that's very strong. And if we can continue that, from my seat, I'm going to be very happy..

Okay. Is that -- I mean is that where the segment is going over time with the acquired revenue or -- I mean, in the past, you have kind of consistently pegged where you expect it to land within a range over the medium term.

Is there an updated version of that?.

Well, we haven't -- we've intentionally not given guidance, no. I do think that what I have said in the past, though, is just if the segment falls between 26 and 30, in we're happy. And I've said that during this time because we have had this mix impact on the business. So I think we'd probably stick with that view for now.

We seem to be falling right in the middle of that range, at least discount this fiscal year. So if you think about perspective, that's fine. We'll give some thoughts in December after we get our budgets done as to what maybe the segment might look like at that time, I believe. But for now, if you stick with that range, you'll be fine..

Okay. And then, Carlos, just on working capital, and it's pretty specifically in the inventory line, you've built that as you've, I think, attempted to kind of smartly be ahead of what's happening with supply chain and all of these different pieces of volatility.

What are you going to -- how are you going to handle that going forward? Do you need to keep doing that? Or can you reverse that? Is that a cash inflow next year? How does that change going forward?.

So I think in the short term, we're going to continue to tell our subsidiaries to invest in inventory. We probably spent during the quarter $18 million to $20 million more in inventory, use of working capital in the quarter, just the three-month period. And I think that I would expect that maybe to continue into year-end.

We'll see how things shape out. What we don't want, Noah, is to get in a situation where our customers somehow are not getting HEICO product because we didn't plan appropriately. Now there's nobody is a magician or can see the future. I mean we do our best, right? We are experiencing some supply chain challenges.

But I think for the most part, because we didn't go long on inventory, it's benefited our customers and our sales. We'll continue to do that probably sometime in '23 when this mess clears itself up in the supply chain. We'll get back to a normal run rate. And to your point, that may be a source of cash midway into '23 or something like that..

And we'll take our next question from Michael Ciarmoli..

Maybe, Carlos, maybe I just missed this, but to stay on Noah's line of questioning within ETG margins, has inflation been any headwind to the margins there for some of your defense exposed products that might be under kind of price contracts that haven't necessarily reset yet? Is that a component of any of the margin pressure that you sort of commented on mix there?.

This is Victor, Mike. I would say it's in the noise level. I mean as we've said in the past, there's a lag effect, which I think is what you're keying on between inflation setting in and the new contract pricing taking effect.

And so -- we don't have a huge part of our revenue under long-term contracts, but we do have some and we do have that lag effect. Now that can be offset in turn by adjustments we make on other contracts where we are not limited. So that's why I say, overall, I don't think inflation has been a big factor in our markets.

It's there, but it's not the big driver, right?.

And I think, Michael, as a practical matter. We -- our subsidiaries have tried to preserve their margins with pricing. We had certainly not gone overboard with pricing as some other companies have.

So that's why we haven't discussed during the year, our margins being impacted from pricing because I think our guys have done a good job, targeted price increases to cover our margins and maintain them..

Got it. Got it. And Carlos, I know you're not going to give us guidance here looking at FSG specifically, I mean, you've sort of averaged maybe 8% sequential revenue growth over the past several quarters, realizing there's some acquisition growth in there.

But you kind of still think if we're looking forward, sort of a mid-single-digit sequential revenue growth rate. And then, I mean, obviously, you're running extremely high here and record levels for segment operating margins in Flight Support. And I'm not necessarily asking if we can see further expansion.

But is this kind of 21-ish percent range kind of stable and good for the near term?.

What I've been really consistent on is that -- this segment, I believe, runs at a 20% operating margin, fully loaded all-in GAAP margin. As Eric mentioned a few minutes ago, the margin in the FSG has been elevated the last few quarters because we have seen the mix settle into our normal run rate.

We've seen different parts of the business come strong in different quarters. And that mix has amplified the OI margin a little bit. And I think as we settle into our normal mix as we get beyond Q4 and probably in the first of '23, I do believe that the segment will settle in. We expect 20%. Could it be better? Sure.

But I wouldn't do long-term projections much higher than that. And you can assume that we'll constantly eke out a little increases to that margin like we have historically. But don't look at two quarters and get over your skis and assume that, that will continue. We hope it does, but I think it's more in the 20% range like we've been talking about..

And we'll take our next question from Gautam Khanna, [CA,Web].

I was wondering if you could discuss supply chain at FSG.

Has that been an issue? And if so, where are the pinch points?.

Yes. The supply chain has been an issue. It's very difficult to get certain raw materials, certain services are very difficult to come by. People are really suppliers are running pretty close to capacity right now.

We've been able to manage it, I think, frankly, because our people work really hard and forecasted some of this stuff combined with the fact that we've been able to hold larger inventories to make sure that we can satisfy the demand of our customers. So yes, we -- that still is a huge challenge for us.

Even though I don't call it out, it is a huge challenge. It's very, very significant. But we've just been able to figure out how to get it done and not let it hinder the business..

Okay.

And can you talk a little bit about where geographically you're seeing strength in the aftermarket on the commercial aftermarket? Is it -- I mean are we starting to see China come back? Or I'm just curious how that pattern has kind of changed over the last six months in terms of areas of strength?.

Yes. If you look at where the flights are. So North America is doing very well and is pretty close back to where it was, maybe at 90% level, followed next by Europe. Asia is significantly behind. China is way behind. South America is sort of in between Europe and Asia, so if you look at it with regard to flights.

So I think that's probably the best way to look at it..

Okay. And just stepping back and asking about Exxelia again, it looks like a very different type of profile. And I was curious how it fits. And I say that because the number of employees is pretty high, over 2,000. So to Carlos' earlier point on margins, it might be a little lower.

I'm just curious sort of how does it fit? And then post that deal, which is fairly large, how bandwidth constrained do you think you are to integrate the other acquisitions, if at all, just give us some backlog on that deal..

So Gautam, this Victor. So kind of taking in a reverse order, constrained -- about the question about constraints on management because of Exxelia, it actually is the opposite for us because it has a very strong management team, central management team.

So we pick up a lot of operations and a number of excellent product lines in one without having to devote the individual resources. Typically, we would buy whatever number of companies that would be, let's say, eight or 10 companies in order to achieve the same results.

So that's I think it actually is easier for us given the quality of the management team. And it's a team. It's not just one person who we're relying on. It's a number of people, fortunately. And with respect to the product, what attracts us to what is really that product line.

I mean, these are critical they're mission-critical components, many used in high reliability applications, certainly, in harsh environment applications. Their business in the capacitor segments and resistors, for example, in those products. They are not serving the bulk commodity market. They're serving the high end market.

So that's a very, very nice fit with us.

And then some of their other products that they make that are slightly higher-level integrations are also these mission-critical components that are used generally in more stable applications, right? We're not going after the consumer and the broad industrial markets, although they do have some exposure in those as well.

So overall, that's what attracts us. And again, the margins are very good. I mean if we're not going into exactly what they are, but most people would look at that and say, wow, this is well beyond the margin of a typical manufacturing company for sure. So all put together, and it's a great -- we think it's a great cash generator.

We also like the fact, by the way, that it expands our international presence in very important markets to be served locally by people in those countries in those regions as opposed to just trying to serve them from the United States. That's important to us. And the geographic manufacturing footprint that we get out of that. We like that as well.

I think it offers us some opportunities as we go forward to be more nimble in production when there are disruptions, and whether those are from future pandemics or supply chain issues or whatever..

One other thing -- this is Larry. They have approximately 3,000 customers, and that's a great market reach and the customers they have are amongst the top industrial companies in the world.

So this customer list, the ability to possibly market with other product lines that we have, plus the fact that I remind you that the average industrial company has an operating margin of 7% to 11%, and this is basically significantly higher than that.

So in other words, one of the problems that we're getting dinged on is that ETG Group is running in the 30s in operating margin. So if we pick a company that's in the 20s, it reduces the margin. But still that’s a great return on investment and very strong cash flow. So we think it will be a very strong acquisition. .

This is Victor. As an aside, you saw in the announcement that they have production in some lower cost countries like Morocco, Vietnam, and generally those are higher headcount, lower wage operations when you're producing those. So generally that influences the number of people.

And the last thing, we mentioned it earlier, but I remind you, we think there is possibility of expansion -- acquisition expansion within that group of companies. So overall this is not something that we just found and we acted upon just 1, 2, 3. We've been looking at this company for a number of years. .

I appreciate the thorough answer. And I was curious also, just in terms of non-U.S.

M&A, is that -- are you seeing more such opportunities with FX and whatever else, is that -- it sounds like it may be one of more?.

There are other opportunities we are seeing outside of the U.S. I wouldn't expect an avalanche of them, but I think we're seeing a few more. And -- but I think our primary acquisition supply, if you will, will come still in the U.S. .

Let me remind you too, that some of our acquisitions result from existing company operations introducing us to customers or suppliers that they use. And as we have more foreign operations, those foreign operations will in due course introduce us to companies that they deal with outside of the U.S.

But I agree with what Victor says, the majority of our acquisitions I would expect to be within the U.S. but I think we're going to see some more foreign acquisitions too. Some of these companies, these foreign acquisitions are really extraordinarily competent people with extremely high technical capability.

I mean, some of the companies that we acquired are in France, for example. France has a serious industrial base and a very highly educated workforce.

So the companies that we own in France, we pay high salaries, and they generate strong profits, and we have been able to expand those companies multiple times, and they've been -- they've worked out as very good acquisitions. .

And we'll take our next question from Colin Ducharme from Sterling Capital..

Maybe I'll start off with Victor. One clarification and maybe one more insightful question. Clarification, just on your book-to-bill. That sounded like you've healthy uptick there. I don't know if you're able to quantify that any more for us.

But if not, just maybe provide some color on what the drivers for that improvement are, whether by market, product or geography. And then a question on the Exxelia deal, it's getting a lot of airtime today. Pretty exciting, your commentary. It sounds very much like a platform for further kind of building going forward.

And I just wanted to try to I guess, clarify that, that's indeed how you and the team are also thinking about it. You talked about opening aperture, is this kind of a land much like Hollywood serves as your kind of central nervous system domestically and increasingly overseas.

Is this kind of going to be a central nervous system for the European continent? Does it open the funnel for incremental deals that may make more sense with this platform in your fold that perhaps made less sense prior to the deal?.

So Colin, it definitely serves as a platform and a base in Europe for Exxelia to expand. And I would expect that they will continue to make acquisitions. They have actually a history of making acquisitions successfully, and including them, if you will, integrating into their system. And I would expect that to continue.

I don't think their plan is to do at a breakneck pace. I think they'll do it at a reasonable pace. But in terms of our other companies in Europe, I don't think our plan is to have them change their reporting lines and to start reporting to Exxelia. Now that doesn't mean that the businesses can't and won't collaborate in a lot of places.

And I think there's a lot of opportunity actually for that kind of thing to happen..

Yes. By the way, one other thing that we think is -- gives us a good opportunity to expand Exxelia into the States. Exxelia, the majority of its sales are non-U.S. And it does have content in the U.S. It does sell in the U.S. And we think we can increase -- the U.S. is a huge market, of course, and we think that we can help them expand in the U.S.

So I think that will be another good opportunity for us..

In terms of your question about Colin, what -- where we're seeing our bookings increase our order flow increase I would say it generally is following the pattern with our revenue to a certain degree. And so the biggest increases are coming in non-defense realms.

Although we have -- within defense, we have some pretty nice increases in some of the individual businesses there as well..

And then maybe a couple of follow-ups for the rest of the team. Eric, you talked a little bit about inventory positioning of certain narrow customers for FSG. And I'm wondering, just stepping back, we've seen in certain industrial segments a change in ethos, if you will, on inventory willingness to carry inventory in certain industrial segments.

And I'm wondering if pre versus post COVID, that's inherent in your aero customers, meaning they want to run a leaner operation post COVID versus pre, or are things relatively consistent? And then a final follow-up for Larry. You talked a lot about consistency of deal flow not a lot had changed there from a pipeline standpoint.

One thing that has changed markedly is the cost of capital, and that changes the math for a certain segment of buyers. And so I just wanted to drill down on that point, if you could ask -- offer a little bit of color if that's changing at all the types of buyers or the timing of getting deals done..

So to answer your last question about the timing, cost of money and so forth, we have been told, as I said before, by many investment bankers, not just 1 that in terms of private equity, the banks have tightened up considerably.

So private equity is paying more for their borrowing, and we think because of our great liquidity and our ability to just draw on our credit line without going to banks for every approval for every acquisition that it gives us a little bit of a benefit over some of the other private equity.

I think some private equity is being stressed a little bit according to what the banks tell us. So I think the increased interest rate probably in the long run is slightly beneficial to us. Now I don't expect that to be a major, major change, but every little bit helps. So I think that's good.

Of course, we are also a preferred buyer because we can write a check. And none of our deals are subject to financing. And of course, as you know, a seller, one of the -- two key things in the seller's mind that is price and certainty to close. And with us, the seller has certainty to close because none of our deals are subject to financing.

So I think all-in-all, this gives us a slight advantage in the marketplace over what things were before, when interest was very, very low, I mean, the banks were just throwing money at private equity.

And so does that answer your question?.

Yes. That's helpful. And just to check up on the inventory positioning for….

Colin, yes, this is Eric. With regard to the inventory, I don't see much of a change thus far in inventory strategy from our airline customers. It's something that we're going to watch very carefully. I think they are -- some lead times are getting pushed out. They're also taking that into account into their ordering -- so I think that's an issue.

But we don't really -- I don't think there's going to be a really a pre-post coin change regarding airline inventory strategy or at least we don't see it at the moment. End of Q&A.

It appears there are no further questions at this time. Mr. Mendelson, I'd like to turn the conference back to you for any additional or closing remarks..

Well, thank you very much. And again, thank you to all the participants on the call. I hope we've responded to your questions adequately. If you have other questions, of course, we are available, you know how to reach us. And otherwise, we will look forward to speaking to you after our fourth quarter and full year report later on in this year.

So have a very good holiday weekend, which is coming up, and we look forward to speaking to you soon again. Thank you..

This concludes today's call. Thank you for your participation. You may now disconnect..