HEICO Corporation (HEI) Earnings Call Transcript & Summary

Welcome to the HEICO Corporation Third Quarter 2026 Financial Results Call. My name is Samara, and I will be your operator for today's call. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include, among others, the severity, magnitude and duration of public health threats, our liquidity and the amount and timing of cash generation; lower commercial air travel, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services, product specification costs and requirements, which could cause an increase in our cost to complete contracts; governmental and regulatory demands, export policies and restrictions; reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth; product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales. Cybersecurity events or other disruptions of our information technology systems could adversely affect our business; and our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals and achieve operating synergies from acquired businesses; customer credit risk, interest foreign currency exchange and income tax rates and economic conditions, including the effects of inflation within and outside of the aviation, defense space, medical, telecommunications and electronics industries, which could negatively impact our cost and revenues. Parties listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including, but not limited to, filings on Form 10-K, Form 10-Q and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. I now turn the call over to Eric Mendelson, HEICO's Co-Chairman and Co-Chief Executive Officer.

Thank you, and good morning to everyone on this call. Thank you for joining us, and we welcome you to this HEICO Third Quarter Fiscal '26 Earnings Announcement Teleconference. I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I'm joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO; and Carlos Macau, our Executive Vice President and CFO. Before getting into our results, I would first like to thank HEICO's nearly 13,000 outstanding team members around the world. Once again, your dedication to our company, our customers and your fellow team members produced yet another exceptional quarter for HEICO. We are tremendously grateful for everything you do and remain excited about HEICO's future and the opportunities ahead. One of the most asked questions by investors and analysts is what is HEICO's secret sauce and how does HEICO continue to report exceptional earnings growth. Not only quarter-over-quarter, and year-over-year, but decade over decade for nearly 37 years. And the answer is always simple. Good markets, solid businesses and even greater people. HEICO succeeds because we simply try harder and our customers don't have to come to us in general because they have no other alternatives. Customers buy from HEICO because they want to buy from HEICO. For our highest quality with the shortest turn times at the most competitive price and most importantly, from who we believe are the best people in our industry. HEICO team members who possess a certain HEICO DNA developed over decades, not just the last up cycle. So when you want to thank Victor, Carlos or me, please note that we're just simply the proverbial tip of the iceberg. And we, in turn, will thank Team HEICO for all of their hard work, technical excellence and most importantly, HEICO comradery. And of course, there's HEICO's team members never-ending focus on cash flow. As one of our close friends told us many years ago and as we always say at HEICO, earnings or opinion, cash flow is fact. In this quarter, I'm proud to announce there was $345 million of it. $345 million of cash generated from operations, which is almost 150% of our net income. Thank you, Team HEICO. We are immensely proud of our third quarter results, which shows continued margin expansion, robust organic growth and strong cash generation. We remain very bullish and optimistic about HEICO's opportunities and our ability to continue our long-term growth and profitability. To summarize the highlights of our third quarter fiscal '26 results. Consolidated net income, operating income and net sales in the third quarter of fiscal '26 represent record results for HEICO, increasing by 33%, 34% and 23%, respectively, compared to the third quarter of fiscal '25. Consolidated net income increased 33% to a record $235.4 million or $1.67 per diluted share in the third quarter of fiscal '26, up from $177.3 million or $1.26 per diluted share in the third quarter of fiscal '25. Consolidated operating income increased 34% to a record $355.2 million in the third quarter of fiscal '26, up from $265 million in the third quarter of fiscal '25. Consolidated net sales increased 23% to a record $1,413.1 million in the third quarter of fiscal '26 up from $1,147.6 million in the third quarter of fiscal '25. The Electronic Technologies Group set all-time quarterly operating income and net sales records in the third quarter of fiscal '26, increasing 55% and 36%, respectively, over the third quarter of 25%. Wow. These increases principally reflect strong 18% organic growth driven by an improved demand for most of the Electronic Technologies Group's products as well as contributions from our fiscal '26 and '25 acquisitions. The Flight Support Group also set all-time quarterly operating income and net sales records in the third quarter of fiscal '26, improving 24% and 18%, respectively, over the third quarter of fiscal '25. These increases principally reflect strong 12% organic growth from increased demand across all of our product lines as well as the contributions from our fiscal '26 acquisitions. Consolidated EBITDA increased 31% to $415.2 million in the third quarter of fiscal '26 up from $316.4 million in the third quarter of fiscal '25. Our net debt-to-EBITDA ratio improved to 1.57x as of July 31, '26, down from 1.6x as of October 31, '25. Cash flow provided by operating activities increased 49% to $345.3 million in the third quarter of fiscal '26 up from $231.2 million in the third quarter of fiscal '25. During the third quarter, we issued $1.2 billion of senior unsecured notes further strengthening our balance sheet and used the proceeds to repay outstanding borrowings under our revolving credit facility. At the same time, we entered into an agreement to amend and extend the maturity date of our revolving credit agreement by 3 years to June 2031, and to increase the committed capital to $2.2 billion. Furthermore, our credit facility now includes a feature to increase the capacity by $800 million to become a $3 billion facility through increased lender commitments and can be extended for 2 additional 1-year periods. We are very pleased with the execution of the bond offering and credit facility amendments, which further enhances our liquidity and financial flexibility. And positions HEICO to continue pursuing our long-term growth objectives. We would like to thank Truist, Bank of America, PNC, Wells Fargo, Credit Agricole, TD, Huntington, JPMorgan, M&T and RBC for their long-term support of our growth capital needs. In July 2026, we paid our 96th consecutive semiannual cash dividend since 1979 at the rate of $0.13 per share representing an 8% increase over the prior dividend paid in January of 2026. And then in June, we completed 2 acquisitions. Our Flight Support Group through an 80% owned subsidiary, acquired 100% of the stock of Cook Defense Systems Limited, William Cooks, Denholm Limited and William Cook, Intermodal Limited, Collectively, we call Cook Defence. Cook Defence designs and manufactures track systems mobility solutions and armored steel components for military fighting vehicles. The purchase price was paid in cash principally using proceeds from our revolving credit facility. And then the Electronic Technologies Group, Exxelia subsidiary acquired 90% of the membership interest in CalRamic Technologies, LLC CalRamic designs and manufactures high voltage ceramic capacitors for high-reliability applications primarily serving the aerospace and defense markets as well as select industrial niches. The purchase price was paid in cash using cash provided by operating activities. We expect both of these acquisitions to be accretive to our earnings within the year following the acquisition. In addition, we have an excellent acquisition pipeline consisting of great potential transactions, both large and small. I now turn the call over to Victor Mendelson, HEICO's Co-Chairman and Co-CEO, to discuss the third quarter results of our Flight Support and Electronic Technologies Groups in greater detail.

Eric, thank you very much. Before getting into the details, I'd also like to recognize and thank our outstanding team members around the world. The results we're discussing today reflect your continued dedication, your discipline and your commitment to serving our customers and to strengthening our company. We are incredibly grateful for everything you do. And we are as excited as ever about HEICO's future and the opportunities ahead for all of us. Turning now to details of the operations. The Flight Support Group's net sales increased 18% to a record $947.8 million in the third quarter of fiscal '26, up from $802.7 million in the third quarter of fiscal '25. That sales increase resulted from strong organic growth of 12% as well as the impact from our fiscal '26 acquisitions. Of course, the organic sales growth reflects increased demand across all, I emphasize all of our product lines. The Flight Support Group's operating income increased 24% to a record $245.3 million in the third quarter of fiscal '26, up from $198.3 million in the third quarter of fiscal '25. That operating income increase was principally derived from the previously mentioned net sales growth as well as an improved gross profit margin and SG&A expense efficiencies that were realized from the net sales growth. The improved gross profit margin principally reflects a more favorable product mix within our specialty products and our aftermarket replacement parts product lines. Flight Support Group's operating margin improved to 25.9% in the third quarter of fiscal '26, up from 24.7% in the third quarter of fiscal '25 And that operating margin increase arose chiefly from the previously mentioned improved gross profit margin. Given by the way, that acquisition-related intangible amortization expense consumed approximately 200 basis points of our operating margin in the FSG in the third quarter of fiscal the FSG's cash margin, which is the way -- by the way, we judge businesses, and we believe businesses should be judged. So before amortization, we call it EBITDA, was approximately 28.5%, which has been consistently excellent and in absolute terms is as far as I'm concerned, spectacular. And that is 110 basis points higher than the comparable FSG cash margin of 27.4% and in the third quarter of fiscal '25. To achieve these margins at these levels, while continuing to deliver meaningful cost savings, outstanding service and exceptionally fast turnaround times to our customers, is a strong reflection of the value our team members continue to deliver. Turning to the ETG. The Electronic Technologies Group net sales increased 36% to a record $483.5 million in the third quarter of fiscal '26, up from $355.9 million in the third quarter of fiscal '25. And that reflects robust organic growth of 18% and the impact from our fiscal '26 and 25 acquisitions. The organic net sales growth is mainly attributable to increased demand for, and I'll add sales up our other electronics, defense and aerospace products. Electronic Technologies Group operating income increased 55% [ a year to ] a record $125.6 million in the third quarter of fiscal '26. That is up from $81 million in the third quarter of fiscal '25. Operating income increase principally reflects the previously mentioned net sales growth, our SG&A expense efficiencies realized from the sales growth and an improved gross profit margin, that improved gross profit margin, by the way, it was mainly fueled by the previously mentioned higher net sales of our aerospace products. The Electronic Technologies Group's operating margin improved to 26% in the third quarter of fiscal '26, up from 22.8% in the third quarter of fiscal '25. That margin increase resulted from decreased SG&A expenses as a percent of net sales, primarily driven by the previously mentioned SG&A expense efficiencies and as well as the improved gross margin that I mentioned before. Importantly, just like with the discussion in the FSG before acquisition-related intangible expense, our operating margin was 29.9%, virtually 30% as intangibles amortization and amortization consumed about 390 basis points of the margin. This compares to 26.6% ETG cash margin in the third quarter of fiscal '25, an improvement of 330 basis points. Again, I can't emphasize enough. This is how we judge our businesses as that most closely correlates to cash generation. And I think you know and have known for many years, our predominant focus is on cash and cash generation. HEICO is a real company that generates real cash. It's not just accounting figures coming out of the machine, we make money. And on a true operating basis, no matter how you look at it, those are great margins, and we are very pleased with the continued expansion of these margins, of course. So at this point, I will turn the call back over to our operator, Samara, to entertain the questions that we may have.

[Operator Instructions] We'll take our first question from Larry Solow with CJS Securities.

Great. Congrats on a really great quarter and like you said, the printing money there. I guess a question for you -- just on the really strong organic growth, 18%, I think back-to-back quarters and year-to-date mid-teens. Maybe this level is not sustainable, but certainly, much better than it was a couple of years back. Just curious, can you help us just -- is it -- it sounds like all your categories are really -- having on all cylinders between defense, aerospace and electronics. Is there any one particular category that's really just -- I know defense has almost halved your revenue. So is that really driving this exceptional growth? Or just any more color there would be great?

Thank you for asking, Larry. Yes, it is very broad-based. I mean I guess our highest percentage growth increase came out of and we're -- people now seem to be calling industrial technology markets. But I can say that defense and commercial aviation or aerospace, we're also extremely strong. I mean, in fact, every one of our verticals, if you look at it that way, every one of the markets, the verticals showed positive signs this quarter. But there were ones that were more standouts than others, but I'm certainly proud of all of them.

How about just trends in bookings behind these categories? Any color there?

Yes. Listen, the trends in bookings are very strong. We have a record backlog again both organically and with acquisitions in the ETG, just very strong backlog, extremely strong orders, particularly in that kind of industrial tech space. A lot of customers are coming in and asking us to expedite where possible. in a number of instances. And then they're following up with orders beyond that. Filling up the backlog. It doesn't so far seem to be all right, where pulls forward for us and then it creates a gap somewhere later. We do everything we can, by the way, to satisfy our customers to do it cost effectively, and to honor their request where we can. It's not always possible. But it just seems there's very strong orders there. And I will say a similar situation in defense. There's a lot of requests for pull forward, the same in commercial aviation and some of the other markets. Right now, it seems to be a moment where customers are saying, how quickly can you get this to us? Can you get it to us faster?

Right. Okay. Last question just for Carlos, just on the margins. Obviously, you think to discuss the EBITDA margins above 28%, now 2 consecutive quarters consolidated. I don't want to get ahead of you, but just any thoughts as you wrap up the year and then as we look out over the next couple of years?

I mean, from my perspective, we still expect in that segment, the 22% to 24% really equate to something like 26% to 28% EBITDA margins. We've had a strong couple of quarters. Of course, our first quarter was a little light on the operating margin side. So for the full year, we still expect that range. I -- we're still in the process now of doing budgets and thinking about next year and -- we'll see how things play out, Larry. I don't want to get too far out ahead of us on that topic. But right now, the tailwind that we're getting from aerospace defense space really, all the verticals that Victor mentioned, is very positive. And as long as that mix holds in, this segment always surprises us to the upside. So that's kind of how I'd like to answer that and rather not elevate expectations at this point.

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

Carlos, maybe just a quickly follow-up there on the ETG margin. The 2 -- the last 2 quarters, '26 and change versus that 22 to 24. Is that entirely 'mix? It sounds like you're also referencing efficiencies, which I think would be longer lasting? And then presumably, just as you continue to grow revenue, there's an overhead absorption impact as well.

Yes. No, you're 100% right, no. I mean this segment you've known us for a long time, the segment is quite mix sensitive. And the challenges particularly in ETG with our fourth quarter going into what our most calendar year filers last quarter, the mix can get a little chaotic. And so I don't want to set expectations too high. I don't feel like there's -- I can't give you a good or bad reason why the margins would not remain strong given the setup with our end markets. But at this moment, I don't want to plant a flag and sort of change our internal expectations or what we talk about publicly related to the margins until we get another quarter or 2 under our belts.

Okay. Makes sense. You guys have talked about the cash flow strength. It's looking like it will be a second year where the free cash conversion from EBITDA is around 70%. And I don't know if you could talk about where you expect the year to wrap up around the $1 billion mark on free cash? And just -- is there something that you've -- that's changed structurally in the business to have a little bit higher conversion from the P&L than you've had in the past?

No, there hasn't been any structural changes. I think that what happens here at HEICO as we incrementally add sales to the business and grow, we don't have a commensurate growth in what I would call as corporate overhead and BS, right? It truly is. The dollars we spend to grow the business are done at the subsidiary levels. And that is the most efficient way to spend our money to grow the business. It's not a big corporate overhead monster. So we do get a lot of lift to your point, in our cash flow, to these sales growth. There's nothing structural that's changed is I do expect this year to be quite high in free cash generation. And so nothing -- there's no leads to add to that [ 3, 4 ] as far as any structural changes.

Okay. And then lastly, on its deployment. Since Wencor, it's been many quarters of a few hundred million dollars deployed towards smaller acquisitions. As we look to your '27 and '28, are we more likely to see that continue? Or are we more likely to see something closer to the size of Wencor again?

So I'll let Eric and Victor jump on that one, but I will point out that we spent a lot of time during the third quarter, redoing similar to our capital structure to sort of reshuffle the deck and create liquidity so that we could -- so I can make sure that when Eric and Victor go to the grocery store and buy their businesses, they have plenty of cash to do it with. So right now, as Eric mentioned in the opening remarks, we got with our accordion, we got close to $3 billion in capacity right now off our line that we could deploy. And so we're set up to continue a nice string of acquisitions here. Now the question for you, too, guys, I'm talking to Eric and Victor in the table here, do we have those opportunities to do it?

Yes. So no, our pipeline is incredibly full. We've got an incredible M&A team, and they are out beating the bushes looking at all sorts of proprietary deals, various processes. As you know, we've worked very hard to be the buyer of choice. And I really believe that we are the best home in the industry for businesses, the way we treat people, what the expectations are going forward, the network that they're plugged into. And I would say, Victor and I are very optimistic on continuing our track record. With regard to smaller medium-sized businesses versus larger businesses, I would say that HEICO is very comfortable with all of those. We're comfortable with small acquisitions. We understand that the small deals work, small businesses work and we provide a great home likewise with the medium and likewise with the large, the Wencor combination has been an absolute home run for HEICO as well as for Wencor. It's gone exceptionally well. We've got a phenomenal team there. And it's given us a lot of confidence to execute on larger deals should they become available. The issue is not whether there are targets out there that it's more whether the culture really fits like it did with Wencor and if the price works for everybody. So I can promise you we're very busy on all fronts.

And I just might add to that, that Wencor was our largest acquisition, but we have also done some of considerable size as well. And all of those have performed exceedingly well. We've been very happy. So the deals of all sizes have worked nicely.

I think just to put a fine point on all of that, I just -- just remember, our goal is to grow the company 15% -- the net income growth in the company goal is just to continue to grow 15% to 20% annually. And I think between our organic growth and the capacity we have to fund deals, we should be in a good position to continue that track record. Thank you.

We'll take our next question from Peter Arment with Baird.

Eric, Victor, Carlos, nice results. Victor, ETG growth kind of accelerating. I wonder if you could maybe just give us an update on kind of what the demand pull is from Europe. Obviously, we know those budgets are firming up and just thinking about Exxelia and some of your other European footprint. Maybe you can give us a little more color on Europe.

Yes. That's -- thank you for asking. Europe has been very strong for us, both here in the U.S. shipping to Europe, by the way, and from within the European market itself. And, I was alluding to that in my answer to Noah's question, Exela is doing extremely well, both in Europe and here. I should add. But Europe, our strategy in Europe has been to grow there. We've added some acquisitions. You've seen recently over there. I think we have a pretty strong appetite for it. And we're excited about that future. And not just on defense, for the obvious reasons of their rising defense budgets. But also on commercial aviation as well as the industrial tech.

Appreciate that. And then just maybe a high-level 1 vote for Victor. Just on the right to repair legislation, a lot of things going on. Obviously, there's been things kicking around since the 2024 FAA Reauthorization Act, Section 349. If the language stays in for the fiscal '27 NDAA, just wondering how you're thinking about the tailwinds or how quickly that could impact your business, both on the commercial and defense side of things.

Yes. This is Eric, Peter. I can tell you that HEICO is approximately 100 operating businesses are all very knowledgeable about what's happening out in the field, and they are going to take opportunity of whatever presents itself. So I think that there are some very good opportunities for HEICO in that area. I don't want to get out in front of it. We'll see what happens with the final outcome of all this. But I can promise you that our folks are really going to be on top of it. And we think there are a number of areas of opportunity. Without going into specifics, obviously, for competitive reasons, we think we're in a very good position to basically help save the government a lot of money.

We'll take our next question from Sheila Kahyaoglu with Jefferies.

Maybe I'll -- Eric, I'll start with you if that's okay. Can we just chat about the different parts of FSG growth to lead to the 12%? And what you saw within aftermarket replacement, repair and then specialty products?

Sure. So the parts business, you're talking on the organic side was 15% growth, organic growth. And by the way, I should mention, I know that it's sort of standard for the industry to talk about organic revenue growth. But again, just to focus at HEICO, the thing that we really care about is operating income growth, organic operating income growth, and that's really the key driver for us. And let me start out by saying that the 12% organic growth, which we're very happy with on revenue, pales in comparison compared to approximately 20% organic operating income growth. And that's what our people are focused on. And if they can trade lower-margin sales for higher value-add sales where we can drive margin I can tell you nobody at HEICO is compensated based on revenue. Revenue doesn't really matter. It's the obviously, the earnings. But to answer your question, the parts and distribution, 15% specialty products is 14% and the component repair was 5%, which obviously is lower and brought down the average. But you also have to understand that in the component repair business, we have a number of businesses where their value proposition is to develop alternative repairs and use alternative parts. And that brings down the revenue. So it increases the value to our customers. It frankly can increase the profitability to HEICO, which is what we all care about, but it can bring down the revenue. So now we do also have a number of businesses within component repair that are OEM aligned and where there is no use of alternative material and no plans to do that. And there is a market for that on those products with those customers, and we continue to go ahead and do that. But we do still have a chunk of our business focused on the alternative space. and that does bring down the revenue. But I can tell you that the profitability is definitely higher than the organic revenue growth in that space.

No, that's great color. And maybe if I could double-click on those 2 items, Ben, just on the component repair and also specialty products. How is make adoption going? Does the component repair work help in that process? It seems like it does? And then within Specialty Products, if you could, in any way, give us color on that 14% what your defense business is doing relative to commercial?

Yes. So the -- so with regard to component repair, yes, the PMA penetration is going extraordinarily well. In the in the markets that want. Again, we're very careful. We have multiple subsidiaries and multiple product lines, whereby we don't even offer alternatives with certain products because those are our agreements, and that's what the customers want. But in the areas where the customers are asking for alternatives and we're generating them, yes. The PMA penetration is doing extremely well and the high propriety DER penetration is doing equally as well. With regard to specialty products, that is largely driven by defense. And our organic growth in defense is very large. It's probably -- I mean, well up in the upper 20s. And we anticipate continued growth in specialty products in the defense area.

We'll take our next question from John Godyn with Citi Group.

Obviously, HEICO has a long heritage in PMA aerospace aftermarket, but more and more -- the other exposures that the company seem to be expressing themselves and really showing through in the numbers. I was just hoping we could spend an extra minute on the outlook for HEICO's exposure to other fast-growing themes that are out there that are not aerospace aftermarket, things like missiles, space, the [ IGT ] last couple of quarters is something that came up around the edges, maybe drone components or anything else you'd flag. It just feels like we're entering a world where some of the other business lines in HEICO that are historically small may be really starting to see dramatic growth that actually moves the needle

Absolutely. And those areas are ones that we've been focused on for quite a long time. And we talked about drones, for example, and we've been serving in various ways the drone market in a serious way, by the way, in very serious ways. Going back to, I don't know, probably before 2008, 2007, before they were kind of a household name. And we've continued to evolve with that in both sides, both the ETG and the FSG and with both electronic components, electro-optical components as well as structural components like composites and others. And I'll add that has expanded. It's not just the historical mainstays of the market, which do remain strong for us. But now we're serving the newer defense tech space and that is a growing business for us. I would say Defense Tech represents for us probably what Defense Tech as a proportion, Defense Tech represents to the overall market and revenues at this point. But we're there, and we're on those, and we're very proud and excited. Obviously, I can't tell you which ones, I don't want to get into that for competitive reasons. In terms of missiles and missile defense, we've seen -- I think I mentioned in our last call, and we're on a lot of different programs they are both, again, in ETG and FSG have been historically, and we have instances where our customers have come to us and asked us to prepare to 10x our production, in some cases, contracted with us already and said, "Okay, you need to double or triple or even 4 times. It's kind of all over the place, but a lot of growth in those markets. And then adding on the industrial tech side. We're definitely seeing an effect from AI, data center construction and so on. how long that goes on, our sense is it has legs that this is not just a 1-year blip. And we have a lot of components that we make in a number of subsidiaries that are used in various quantities there. So we feel like we're participating in that as well. And of course, space, commercial space, defense space is embedded within our defense markets. And -- but just first talking about commercial space. We all read the same things that market is growing tremendously. There's a great deal that's happening there. Our components are on those. We're staying, I believe, ahead of the curve with that. And even in defense space opportunities like gold and dome. There are instances where we suspect we're on Golden Dome hasn't been confirmed. And in some instances, we feel certain that it's golden dome related. So if you look at HEICO, final comment, we don't look for the single magic silver bullet. It's mixing metaphors here, singles and doubles. And it's this very steady growth rate. We're looking for that 15% to 20% bottom line growth each year. And we're not looking, frankly, it's a controlled growth strategy. We're not looking to grow 50% 1 year and then only 5% the next and have a volatile situation. So we manage it, we manage it very carefully.

Yes. And then also just to add with regard to the IGT area, of course, you're aware of the Ethos acquisition that we made earlier this year, and we're very excited about their repair capabilities. for the IGT market. And we think that there's a lot of potential there for obvious reasons. And then we're also seeing we're seeing orders not only in our Ethos IGT repair business, but we're also seeing orders for IGT products within our other parts business.

That was great color. And I certainly don't expect you guys to break out organic growth for each of those business lines. But at a high level, is it fair to say that the organic growth of behind those themes is leading HEICO. I'm just trying to understand kind of what you guys are seeing and if we're hitting that S curve in some of these businesses, it seems like we may be. Yes. I think that there's a lot of potential, as I mentioned in Sheila's answer, the Sheila's question that our defense revenue organic growth, for example, over in the flight support side was extremely strong in the upper 20s. So that's leading the way right now, but we see strength across all of the markets.

Similar in ETG, defense and aerospace seem to be leading the way of growth.

And we'll take our next question from Ron Epstein with Bank of America.

A couple of quick ones for you. everything is kind of coming up roses right now, which is great. But is there anything that worries you? Are there any areas where you're spending a little more time just making sure that kind of everything is lining up the way you want? How are your supply chain ring? How is your labor front? Is there anything else like Canada and what's going on there? That you're just trying to have a strategy around in case something goes rig. So what are you spending your time on trying to solve? It seems like everything else is going [ discrete ].

Yes. Ron, this is Victor and Eric will answer it as well. But in terms of where we're spending our time, I would say it's in the traditional ways and the traditional places. There's nothing that particularly stands out that's unusual. I'd say it's somewhat prosaic, but the basic blocking and tackling in the business and making sure that we're doing all the things we should be doing on taking care of customers and our people and acquisitions and capital structure, et cetera, et cetera. But the areas that are ones we watch, but don't really have much control over, of course, like the geopolitical ones, right, where is there a spike, a short-term spike in oil prices? Or is there some short-term issue that we may have to deal with, where it's hard really to plan for, and we generally look at it that it's we're not going to run the business for those short-term interests, and we're going to keep running it for that long-term view. Hiring wise, I would say it's about the same as it was it's been challenging hiring great people and bringing great people into an organization, and it hasn't gotten easier, but I don't think it's gotten worse. And right now, with AI and things like that, our anticipation is that labor situation shouldn't be a problem. There is inflation in input costs, and we have to be able to pass those on. And I think a lot of that is driven by the AI market. We do notice anecdotally that they are just kind of a broad smattering of parts and components and subcomponents and raw materials that are pushing out in lead times and becoming more expensive. So the challenges our companies are facing a little more are planning for those. So they're getting out a little longer on orders. for their materials to make sure that doesn't impact them. It's nothing pronounced yet. But I would say that something at least I'm kind of keeping an eye on because I hear these stories anecdotally, but very proud of the way our companies are dealing with.

And Ron, the other thing that I would add is that we've got a very mature team. We've been doing this for a long time, and we've seen a lot of market locations, and we've learned from that. whether it's 911 in SARS or the global financial crisis or COVID, we know what happens. We've seen this movie before, unfortunately, where things can go wrong or no one expects it. And that's why we work very hard to set up this organization that we've got, which is a decentralized organization where people really understand their markets very well, and they're close to their customers. And if you look at any of those dislocations, HEICO has been far more resilient and bounced back quicker than typically other than the industry. And I believe it's, again, due to the HEICO people, the HEICO structure, our which causes the business to be very resilient. And Victor spoke about the various geopolitical events. I think that's the -- obviously, the greatest risks, which they always are. But I feel very, very confident that the HEICO team is well prepared for whatever the future may bring. And frankly, when we look at the numbers and the projections going forward, we're extremely optimistic.

Yes. Maybe just another follow-on. How are you guys thinking about -- or do you not at all, but just curious if you do see that you've been so good at traditional M&A. How do you think about corporate venture capital, given what's going on in, call it, aerospace tax and defense cared otherwise, have you got ought to make it bets there or not? Is that kind of outside of what you normally do? Have you thought about it? Just curious what you think?

Yes, this is Victor. As an overarching observation, I don't see us setting up a venture having a kind of a venture tech arm as other companies do because we don't see that in being in our remit broadly at this point. But having said that, we have invested in a handful of companies for strategic reasons that were -- that are venture tech investments, and then it worked out very well. We didn't do it just for the return. It wasn't sort of like we're betting on anthropic or something like that. It was because we needed something they were making or we wanted the relationship and we wanted it to be part of it. So I think we'll continue to do that very carefully, very strategically without becoming a VC fund.

And we'll take our next question from Jon Siegmann with Stifel.

This is [ Subash Naver ] on for Jon today. Maybe just quickly, last quarter, you had mentioned the DOW framework agreements were still being worked out and not sure where they land and that capacity investments around that would be anchored on kind of having those concrete LTAs in hand. Is there any update can maybe note there?

Yes. So we're beginning to see some of those come to fruition. I think there's a lot more to go, but we've definitely seen some POs contracts appearing for the multiple -- I'll call them the multiplier effect that I mentioned earlier in one of my other answers. And I would expect that to continue for some time.

And then maybe to kind of piggyback on Sheila's question, can you maybe just quantify how much Wencor has kind of enabled the margin step-up year-to-date in FSG and kind of what inning you guys are in, in terms of kind of like that PMA content replacement opportunity?

Yes. I don't know specifically that Wencor has created a margin step-up opportunity. We always thought that there were synergies that could be achieved, and we've been able to get them. And that certainly has helped I think there's a lot more that the businesses can do together. And to guess what inning we're in, that's hard to say, but maybe the fifth inning. I think we still have got plenty more to go. And depending on if certain plans and objectives and thoughts come into play, it could be the second inning. So -- but we're working on all that now. But it's been a phenomenal combination, and I'm very excited about the future for the combined company.