HEICO Corp (HEI) 2017 Q1 法說會逐字稿

Good morning. My name is Evelyn and I will be your conference operator today. At this time, I would like to welcome everyone to the FY16 full-year and fourth-quarter earnings conference call.

(Operator Instructions)

Certain statements made in this call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including, but not limited to, lower demand for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demand for goods and services; product development or product specification costs and requirements, which could cause an increase to our costs to complete contracts, governmental and regulatory demands; export policies and restrictions; reductions in defense, space, or homeland security spending by US and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and product pricing levels, which could reduce our sales or sales growth; product development difficulties, which could increase our product development costs and delay sales; our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk; interest and income tax rates; and economic conditions within outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our costs and revenues; and defense budget cuts, which could reduce our defense-related revenue.

Those listening to this call are encouraged to review all 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 statements, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law.

I would now like to turn the call over to Laurans Mendelson. Thank you. You may begin.

Thank you very much, and good morning to everyone on the call. We thank you for joining us and we welcome you to HEICO's first-quarter FY17 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 Vice President and CFO.

Before I start, I want to thank the approximately 5,000 HEICO team members who really make HEICO what it is today. Senior management can lead by example, but the people that are in the field getting the daily performance done the way we want it to be done in the most admirable manner, they are the ones who deserve the credit for the great success of this Company. I can't mention 5,000 names on the telephone, or I'd be here until next week, but I do thank each and every one of our HEICO team members for their outstanding performance.

I'd like to take a few minutes to summarize the highlights of our outstanding first-quarter results. Consolidated net income increased 31% to $40.9 million, or $0.59 per diluted share in the first quarter of FY17, and that was up from $31.3 million or $0.46 per diluted share in the first quarter of FY16.

Consolidated operating income increased 23% to $64.6 million in the first quarter of FY17, and that was up from $52.6 million the first quarter of FY16. In addition, HEICO's operating margin increased to 18.8% in the first quarter of FY17, and again that was up from 17.2% in the first quarter of FY16.

Cash flow, which as you all know is what HEICO management keys on, the most important back quantitative factor in our business. So cash flow provided by operating activities was extremely strong, increased 24% to $56 million in the first quarter of FY17. And that represented 137% of reported net income, as compared to $45.2 million in the first quarter of FY16.

As of January 31, 2017, the Company's total debt to shareholders equity was 38.3%. In addition, our net debt to shareholders' equity was 34.1% as of January 31, 2017. With net debt, and we define that as total debt less cash and cash equivalents, so net debt of $371.4 million, and that had been principally incurred to fund acquisitions in FY16 and FY15.

In January 2017, we paid an increased regular semiannual dividend cash of $0.09 per share. This represented our 77th consecutive semiannual cash dividend, and that represented a 13% increase over the prior semiannual cash per share cash amount of $0.08.

In addition, given the strength of HEICO's share prices and the Company's of history of stock splits and dividends, the Board of Directors intends to consider a stock split or stock dividend at its next regular meeting on March 17, 2017. To remind you, historically we have declared 14 stock splits or stock dividends since 1995.

In January 2017, we were happy to announce HEICO's 60th anniversary in business. The Company was founded in 1957 and our current management group took over in 1990. Since 1990, HEICO has grown from approximately $26 million in revenues and market cap of about the same amount, to a current market cap of approximately $5 billion and sales of nearly $1.4 billion in FY16. Again, we thank our nearly 5,000 team members worldwide, as well as our customers and our suppliers for getting HEICO to this unique milestone.

In January 2017, Institutional Investor magazine named HEICO to its All-American Executive Team, and named me, Laurans Mendelson, the best CEO in the aerospace and defense electronic sector, and named HEICO's investor relations program as the second best such program in the aerospace and defense electronic sector. These honors could only have been achieved through again the dedication of our nearly 5,000 team members and their outstanding and diligent commitment to excellence.

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

Thank you. The Flight Support Group's net sales increased 8% to $220.9 million in the first quarter of FY17, up from $204.6 million in the first quarter of FY16. The increase was all organic growth of 8%, principally attributed to increased demand and new product offerings within our aftermarket replacement parts and repair and overhaul parts and services product lines.

The Flight Support Group's operating income increased 17% on that 8% organic growth to $41.4 million in the first quarter of FY17, up from $35.5 million in the first quarter of FY16. The increase is principally attributed to the previously mentioned net sales growth, with operating income increases in each of our three product lines.

The Flight Support Group's operating margin improved to 18.7% in the first quarter of FY17, up from 17.3% in the first quarter of FY16. The increase is principally attributed to the previously mentioned higher net sales volumes and the positive impact of higher net sales on the fixed portion of SG&A expenses.

With respect to the remainder of FY17, we continue to estimate mid single digit growth in the Flight Support Group's net sales over FY16 levels, and the full year of Flight Support Group's operating margin to approximate 19% to 19.5%. These estimates exclude additional acquired businesses, if any.

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

Thank you, Eric. The Electronic Technologies Group's net sales increased 21% to $126.2 million in the first quarter of FY17, up from $104.2 million in the first quarter of FY16. The increase reflects organic growth of 8%, mainly attributed to higher net sales of certain other electronics, aerospace, and medical related products, as well as net sales of approximately $13 million contributed by our FY16 acquisitions.

The Electronic Technologies Group's operating income increased 31% to $29.1 million in the first quarter of FY17, up from $22.3 million in the first quarter of FY16. The increase is principally attributed to the previously mentioned net sales growth, and $3.1 million in acquisition costs associated with a prior-year acquisition that were recognizing in the first quarter of FY16, partially offset by a less favorable product mix for certain space products and an increase in research and development expenses.

The Electronic Technologies Group's operating margin improved to 23.1% in the first quarter of FY17, up from 21.4% in the first quarter of FY16. And I also note and comment that is after, of course, around 300 to 400 basis points of intangibles amortization expense. Which means that if I look at and we look at how we evaluate our businesses, which is before intangibles amortization expense, which is an expense that only exists because we made an acquisition.

It doesn't really reflect how those individual businesses are doing on a trading basis. Those are very strong margins and we're very pleased with them. The increase principally reflects the previously mentioned net sales growth and decrease in acquisition costs, partially offset by the less favorable product mix and increase in research and development expenses.

With respect to the remainder of FY17, we are continuing to estimate mid to high single digit growth in the Electronic Technologies Group's net sales over FY16 levels, and the full year Electronic Technologies Group's operating margin to approximate 24%. And I make the same note about amortization as I did a few moments ago. These estimates exclude additional acquired businesses, if any.

I'll turn the call back over to Larry Mendelson.

Thank you, Victor. Thank you, Eric. Moving on to diluted earnings per share. Consolidated net income per diluted share increased 28% to $0.59 in the first quarter of FY17. That was up from $0.46 in the first quarter of FY16.

During the first quarter of FY17 we adopted accounting standards update 2016-09, which simplifies several aspects related to accounting for share-based payment transactions. The adoption of this standard resulted in HEICO recognizing a $3.1 million discrete income tax benefit which, net of noncontrolling interest, increased net income attributable to HEICO by $2.6 million, or approximately $0.03 per diluted share.

In addition, the adoption of this standard required us to increase the number of weighted average diluted shares outstanding by 543,000 shares. The increase in shares within our diluted EPS calculation is recurring, while the previously mentioned discrete benefit is a one-time event. For all of you on the call, I'm sure that paragraph is rather confusing, and Carlos Macau, our CFO, is available at any time at your discretion to explain the details and how the new accounting requirements are calculated.

Depreciation and amortization expense totaled $15.2 million and $13.9 million in the first quarter of FY17 and FY16, respectively. That increase principally reflects the incremental impact of higher amortization expense of intangible assets attributable to our FY16 acquisitions.

R&D expense increased 25% to $11.2 million in the first quarter of FY17, and that was up from $9 million in the first quarter of FY16. The increase in R&D expenditures during the first quarter of FY17 occurred in both operating segments, as well as the incremental impact of R&D expenditures associated with our FY16 acquisitions.

Significant new ongoing new product development efforts are continuing at both Flight Support and ETG, and we continue to invest approximately 3% to 4% of each sales dollar into new products development.

SG&A expenses were $60.9 million in the first quarter of FY17, up from $59.6 million in the first quarter of FY16. The increase principally reflects higher performance-based compensation expense, as well as the impact from our FY16 acquisitions, and they were partially offset by the previously mentioned $3.1 million decrease in acquisition costs.

SG&A expense as a percentage of net sales was 17.7% and 19.5% in the first quarter of FY17 and FY16, respectively. The decrease principally reflects a 1% impact from the aforementioned decrease in acquisition costs, as well as the benefit of higher net sales volume on the fixed portion of SG&A expenses.

Interest expense increased to $2 million in the first quarter of FY17, up from $1.6 million in the first quarter of 2016. Increase was due to a higher weighted average balance outstanding under our revolving credit facility, associated with our FY16 and FY15 acquisitions, as well as slightly higher interest rates. Other income and expense in the first quarter of 2017 was not significant.

Our effective tax rate in the first quarter of FY17 decreased to 26.6% from 29% in the first quarter of FY16. And that decrease principally reflects a discrete income tax benefit related to stock option exercises resulting from the adoption of the new accounting standard, which I previously discussed, as well as higher tax exempt unrealized gains in life insurance policies related to the HEICO corporate leadership comp plan.

These decreases were partially offset by the benefit recognized in the first quarter of FY16 from the retroactive and permanent extension of the US federal R&D tax credit that resulted in the recognition of additional income tax credit for qualified R&D activities related to the last 10 months of FY15.

Net income attributable to noncontrolling interest was $5.3 million in the first quarter of FY17, and that's comparable to $4.7 million reported in the first quarter of FY16. For the full FY17 year, we continue to estimate a combined effective tax rate and noncontrolling interest rate between 39% and 40% of pretax income, assuming that US corporate tax reform does not become effective during this fiscal year.

Now moving on to the balance sheet and cash flow, our financial position and cash flow remain very strong. As I previously discussed, cash flow provided by operating activities was very strong, increasing 24% to $56 million in the first quarter of FY17, and that represented 137% of reported net income, and that was compared to $45.2 million of cash flow in the first quarter of FY16.

Working capital ratio, that's current assets divided by current liabilities, improved to 2.9, as of January 31, 2017, and that compared to 2.7 on October 31, 2016.

DSOs of accounts receivable were 47 days as of January 31, 2017. That compared favorably to 52 days as of January 31, 2016. As you know, we closely monitor all receivable collection efforts in order to limit credit exposure. Our credit experience is generally excellent.

No one customer accounted for more than 10% of net sales, and our top five customers represented approximately 21% and 18% of consolidated net sales in the first quarter of FY17 and FY16, respectively.

Inventory turnover rate improved to 127 days as of January 31, 2017, and that compared favorably to the 130 days as of one year ago, January 31, 2016.

Previously mentioned, total debt to shareholders' equity was a low 38.3% as of January 31, 2017. Our net debt to shareholders' equity was 34.1% as of January 31, 2017. And net debt, as I described before, total debt less cash and cash equivalents was $371.4 million, principally incurred to fund the acquisitions in 2016 and 2015. We have no significant debt maturities until FY19, and we plan to utilize our financial flexibility to aggressively pursue high-quality acquisition opportunities to accelerate growth and maximize shareholder returns.

Again, I congratulate our team members and especially the leaders of our business units for delivering an exceptional quarter of high cash flow generation as well as earnings per share. It is a testament to their commitment to excellent entrepreneurship, daily focus on delivering high-quality products that exceed our customers' expectation. Again, it is their hard work and dedication that allows HEICO to consistently deliver exceptional results for its shareholders.

Now the outlook. As we look ahead to the remainder of FY17, we do anticipate continued net sales growth, both within Flight Support and ETG, and that will result from increased demand across the majority of our product lines. During the remainder of FY17, we'll continue our commitments to developing new products and services, further market penetration, as well as an aggressive acquisition strategy, while maintaining our financial strength and flexibility.

With regard to our acquisition pipeline, it remains robust. As HEICO shareholders have come to expect, we are aggressive acquirers of successful businesses, but are patient allocators of capital, and we do not have an acquisition clock. At this time, our due diligence teams are highly engaged in potential targets across the globe. While I cannot predict the outcome of our due diligence efforts, nor the ultimate closing of these potentially accretive transactions, we do remain optimistic on the opportunities we are pursuing.

As you know, we will not force an acquisition, and if we find something that mitigates against acquiring a business, we will walk from the closing table rather than make a major mistake. Hopefully the transactions that we're looking at will close, but again, we cannot guarantee it because we are not finished with due diligence.

Based upon current economic visibility, we are increasing our estimated consolidated FY17 year-over-year growth in net sales to 6% to 8%, and net income increasing the estimate 9% to 11%, up from prior growth estimate in net sales of 5% to 7%, and net income of 7% to 10%. In addition, we anticipate our operating margin to approximate between 19% and 20%.

Depreciation and amortization expense of approximately $63 million, CapEx to approximate $38 million, and cash flow from operations to approximate $260 million. These estimates of course exclude any additional acquired businesses.

I would like to mention that we're cautiously optimistic that President Trump's new business-friendly policies will impact HEICO in a favorable manner. Decreases in corporate tax rates would increase HEICO's earnings and cash generation. In addition, increased military spending would help HEICO given that we continue to generate approximately a third of our business revenue from defense and space.

Furthermore, his pro-business stimulus plan should positively benefit the commercial and industrial markets that we serve. However, given political posturing in Washington and lack of clarity on specifics, we cannot be sure of what or when these impacts, if any, will ultimately translate into increased shareholder value to HEICO.

In closing, I promise you that we'll continue to focus on intermediate and long-term growth strategies, with a laser focus on growing our core businesses, and an emphasis on acquiring additional profitable businesses at fair prices.

That is the extent of my prepared comments, and I would like to now open the floor for questions.

(Operator Instructions)

Ken Herbert, Canaccord.

Good morning. I first wanted to ask Eric within FSG, very nice organic growth in the quarter. Can you provide any more detail on, obviously you were up against your easiest comp from FY16, just up 1% a year ago. You didn't raise the full-year guidance for sales growth. Was there anything unique in the quarter that was maybe one-time, or can you talk a little bit more about where you saw strength, either on a geographic or product line basis?

Good morning, Ken, this is Eric. I would be happy to answer that. We were very, very happy with the positive results with the organic growth up 8%. And I think the thing that we were even happier about is that we had organic growth in operating income, because all of that growth was organic, organic growth in operating income of 17%. And the people who run our businesses are measured primarily on operating income and cash flow. That's what we focus on.

And obviously revenue is sort of a byproduct. You've got to have revenue in order to have earnings. But we try to keep them really focused on as few objectives as possible, so the 17% is very important. We were able to reduce some sales of some lower margin activities. We were able to get into some higher margin activities. We've seen strength around the world.

You're right, in terms of as the year goes on, our comps get tougher. But I would have to say our business leaders are probably conservative by nature, and it's tough in a business where you get 70%, 80% of your orders in the month of shipment. It's very difficult to be able to forecast going forward. So I'm sure that they're going to do everything that they possibly can to drive the organic earnings growth and hence the organic sales growth up.

But I wouldn't say that it was due to any one area. I've done detailed sales reviews with our sales leaders and the heads of our businesses, and we've got a lot of good project [team] work. As we've said for many years, as time goes on I think that HEICO's market credibility improves, and customers are interested in us developing additional products in related areas, adjacent spaces that we haven't been in in the past, and I anticipate that to continue.

Okay.

Ken, this is Carlos. I want to add one thing to that because you had mentioned geography, and I do want to clarify one thing because as you know, last year we spoke quite a bit about Latin America and South America, and I suspect that's where your geography question came from. What we have noticed so far this year is quite a bit more optimism out of our business unit leaders in the repair and overhaul business for that marketplace. And that was not a drag. As Eric mentioned in the organic growth that we posted this quarter, that was not a drag. And so we're cautiously optimistic that's behind us, and as the year plays out more we'll have more color on that particular topic.

Okay, that's very helpful. Eric, I know you specifically highlighted the new products' introductions as a source of growth or upside in the quarter. Is it possible to give any more detail around some numbers on that, relative to legacy products, or maybe just mix of the growth from newer programs or products versus more mature or established products within the segment?

No, that's a very good question, but for competitive reasons we don't like to get into specific platforms. But I can tell you we're doing very well on the legacy side. We're also getting into the new products as well. As I mentioned before, the new products tend to be extremely expensive.

Of course there's the competitive dynamic in the newer area is increasing because there are fewer suppliers, and those suppliers tend to have a greater amount of content on the aircraft. But that also provides greater opportunity for companies like HEICO. So I would say we're doing very well in both areas, and we're meeting our objectives without going into the specific numbers which would cause competitive issues for us.

Okay. Thank you. And finally if I could, Larry, obviously you continue to see, it sounds like a fairly robust M&A pipeline. Can you just comment on some of the issues with -- is it issues with valuation, is it issues with maybe just not seeing the right business that's contributing to your, I don't want to say delay, but obviously you're going to be disciplined in how you think about the M&A process? And second, as a part of that, do you have a particular preference for companies now with more commercial versus defense exposure?

I'll answer your last question first. We are neutral. We like defense and we like commercial. And it all depends on what the company looks like. We're not afraid of defense. We all believe the defense budget is going to be increased. They're talking about a $50-some billion increase. That in itself will be helpful to us. We have some wonderful defense businesses, so we like them. And we also are looking at very good commercial businesses. So it really depends on the opportunity. As you know, we are opportunistic buyers.

The M&A business is as you know very difficult. So one, it's a question of pricing. As interest rates were lowered, multiples expanded, you get a lot of competition in there. So first thing we have to consider, pricing and what people are asking. And then once we get to that point, and you know we only look at companies that have operating margins of 20% or more, with the exception of some tuck-away deals where we can cut overhead and so forth, but most of them, say 80%, will be standalone operations, so we want strong companies, strong histories, strong cash flow, low CapEx.

And to find these companies is difficult. And then once you find them, the due diligence process that we use is extremely thorough. And we do it in-house, so it takes us a little bit longer. We send our people out to the field and they scrutinize these companies. Sometimes private companies take longer to generate the data that we need, and again, we really take a deep dive into companies, products, customers, and everything else.

And we're not going to force an acquisition. Again, I do believe that we're going to make a number of these transactions. But in order to sound good to the market, we're going to do the right thing for the long term of HEICO. And again we focus on growth of 15% to 20% bottom line, and we had a strong quarter in organic of about 8%. So between organic and acquired growth, that target of 15% to 20% over the next number of years is doable, and we're going to continue to shoot at it.

So there's nothing that is troubling us about the acquisition pace, and we just have to do our homework, and that's really what delays it. Does that answer your question?

No, that's very helpful. Thank you very much and very nice quarter, thank you.

Larry Solow, CJS Securities.

Good morning, guys. Good color on the acquisition environment, thank you. Question, Eric, for you, you obviously had a nice quarter, 8% organic growth, I know it's more operating income that you look at, but on the sales side, there was some improvement in the repair and overhaul market? In particular I know that was what hurt last year's -- it made that comp a little bit easier. Was there some improvement there?

Yes, there was. There was improvement in the overhaul business, and so that of course helped the comp. But I would say that there was strength all the way around, really in all of our businesses. It was really quite strong.

The growth in aftermarket in particular, that's been mid-single digits, was that higher this quarter? Any change that you see industrywide?

When I look at our numbers and the fact that we're up 8% on sales and 17% on operating income on an organic basis, from the numbers I've seen from other companies that's a big out-performance. Of course we report early, so I don't know how the other companies are going to report for their first quarter, but my guess is that HEICO is outperforming.

We've always felt that due to HEICO's business model, the businesses we are in, with the margins, with the cash generation, and as well as with our operating structure, where we divide these businesses into smaller business units so people can feel, people can have the authority and the responsibility to execute and generate these results. We have a structural advantage.

So my sense is yes, the tide is rising. But HEICO it might get, is then of course we'll see when other people report. But based on the numbers that came out for other people's fourth quarters, which included our November and December from our first quarter, HEICO is way outperforming.

Got it. And then question quickly for Carlos. Obviously you have done a great job on DSOs and your overall working capital management cash flow. I thought DSOs were basically been steady, in the high 49 range. Was there something that made it bounce up a little bit? I have to go back and look, that made it bounce a little higher last year, or that drove the improvement this quarter?

No, at the end of last year we had some receivables outstanding from larger contracts that got paid off. Our guys did a fabulous job in the first quarter managing cash flow collecting on receivables. Nothing out of the ordinary. As Larry mentioned earlier in our prepared remarks, generally speaking from a receivables standpoint, we're pretty quick cash collectors, and I wouldn't say that there was anything unusual. Our run rate has typically been in the high 40%s to very low 50%s. There has been a tendency by larger corporations to stretch out terms. In some companies we've been successful and not had that impact our DSOs. So nothing new to report there.

Okay. And just a last question for Larry. Clearly the new presidential -- it sounds like things should help you or could certainly help you. Just on the defense side, hypothetically if things were to increase, can you just remind us how long it would take to potentially flow through into your business?

It'll take a little while. Victor can give you a little bit more color. He's closer to the ground on this, so he has definite thoughts on it.

Hey Larry, this is Victor. The answer is of course we all have the same visibility, I'll start with that. We all read the same newspapers. I don't have any particular insight or inside information out of DC that anyone else has. Our general view is, the increase in the defense budget that would come is not going to really impact us materially in 2017, and it's probably not necessarily even early 2018. It's somewhere, we would think, in 2018. But I don't want to put an exact date on it.

Because what has to happen of course is first the budget has to get through. And then once the budget gets through, the POs if you will get cut. And that takes some time. And those things get on order, and then there's a lead time to produce and so on. So I don't anticipate that the current discussions on a larger defense budget are going to impact the industry materially in our FY17. But I do think we'll start to it sometime in 2017.

What we are noticing and people in the industry are noticing is something a little bit different, a little bit more positive, particularly in the current administration, and that is the lack of reticence to spend money. What we were starting to notice was that money that had been approved in the defense budget, that had been planned for spending in the defense budget, wasn't actually getting spent. And things were moving around to fund other priorities, and spending was just getting delayed, and excuses were up here and things of that sort. We've noticed more recently that is abating. Specifically in the current calendar year, we've been noticing that abating.

So there is, what we believe, to be a greater willingness to fund what has already been approved. And we'll see how that works through for us during the year and for the industry during the year. The concept a rising tide lifts all ships applies to the industry as a whole. But of course, keep in mind we will ultimately have to see which budget priorities affect which ones of our companies. And it will be important of course for funding to apply and for spending to apply to the programs we're on, right? And that's what we remain to see. So we as a general rule have a positive outlook based on what we're reading in the press, and we'll update as things go along. Is that helpful?

Absolutely. Very helpful. Thanks a lot, I appreciate it.

Sheila Kahyaoglu, Jefferies.

Good morning and thank you for taking my question.

Good morning, Sheila. Did you listen to my advice? (Laughter)

No, clearly I didn't. (Laughter) From now on maybe I should just listen. I would have liked to hear that. (Laughter)

Eric, can I ask you a question within the repair and overhaul business, I know you said it improved. Is there any way you could give us more color on what you're seeing on the activities side, if fuel prices rise on a year-over-year basis? Or is that changing repair activity at all, or not so much?

Sheila, that's a good question. We have not seen the increase in fuel prices impact repair activity thus far. Of course the cost of new equipment is very high, and you and others have written about the perhaps oversupply or potential future oversupply in the wide body and the narrow body markets. So I think the airlines are looking to maintain the equipment that they've got. And we're in pretty good shape with regard to fuel. Of course if fuel were, despite which people don't believe that it's likely at this point, if fuel were to spike, that would not be good for it. But we have not seen any real significant impact as a result of fuel in our component overhaul businesses.

Thank you. Victor, can I ask you about the organic growth within your end-markets, specifically on medical and electronic. What drove that, and could you expect that to continue throughout the year?

Sheila, this is Victor. I'll answer the last part of the question first. As a rule of thumb if you look back over time these things tend to shift. And so we may have a stronger quarter in growth in one group, let's say defense, and then the next quarter it shifts around to other electronics or products that go into medical equipment. And then it can shift to space, and so forth. I would say that if I looked for growth over the course of the year, I would expect that as the year wears on we'll see it more evenly distributed across the businesses.

We are seeing particularly good signs if you will in some of the electronics, medical, and other markets these days. They've been strong when I look at the backlog, I look at the orders, I look at book to bill, things like that in those other product lines and companies. They've been fairly strong. If past is prelude, which it usually is, I would expect those to moderate somewhat, and some of the other lines to increase somewhat and see a fairly even distribution over the course of the full year.

Got it, thank you. Just one more on Robertson, do you mind providing an update of what's integrated, or how the business is progressing thus far now that you've owned it for a year?

Sheila, so far so good. We're very happy with how it's done, I would say more or less right on the mark with our expectations. Happy with the people, happy with the Management Team there. That's not to say that everything is always easy, it never is in any business, and we're always cautious with how we proceed. But it's really been on the mark.

Great. Thank you very much and great quarter.

Sheila, thank you very much.

(Operator Instructions)

Michael Ciarmoli, SunTrust.

Good morning, guys, thanks for taking my questions and nice quarter.

Thank you, Michael. Thank you for your interest too.

Eric, I wanted to go back, the 8% percent organic growth, we've talked a lot here about the MRO and maybe those headwinds alleviating. But can you talk about the parts sales business? Some of the other suppliers out there talked about strength with the CFM56, with the B2500, it seems like the expectation is there that the shop visits would pick up.

Can you just give some color in terms of what you're seeing on the actual parts side? And maybe even layer in some of the data points about used aircraft? I think you guided, as making some statements that there's a desire to operate used, and what the expectations for part demand would look like as the year progresses?

Hello, Mike, this is Eric. I'd be happy to address your question. We are seeing strength. I can't unfortunately get into specific product lines or product types as you know due to competitive reasons.

Sure.

But you're right, we have seen the airlines continue [time], some of the older equipment where it makes a lot of sense to operate, especially in this fuel environment, the lower-priced equipment. What I can tell you that is in the surplus market, going back to the roughly 2013, 2014, 2015 time, even a bit of 2016, we saw a lot of money pouring into this space, frankly where financial investors without experience, really, in this space thought that it would be a good business to get into.

And I would say that it's in our opinion nothing is easy. Everything looks easy from the outside, but when you get on the inside, it's extremely difficult. And in order to do it on a consistent and successful basis, you've got to have the right methodology and the right people. And some of these financial investors who went in and bought equipment at prices that were fairly aggressive, let's just say roughly the 2013 to 2015 area, have realized that it's not such an easy business, and you really have to know what you're doing, and the return has not been what they've expected.

So some of the pricing from what we've seen has come down to more reasonable levels, where people can start to make wise investments there. But we see continued growth in all of these markets, and tremendous need for our products.

Got it, that's helpful. And just one more and I'll get out of the way here. Any more data or color in terms of what's happening within the EU with the investigation ongoing into the practices of some of the engine providers, and trying to lock up airline customers over the longer term? How do you see that shaking out? (Inaudible) an opportunity if you get to see some ruling inside of the airlines, but any additional color there?

Just to give everybody a little bit of background, what you're referring to is IATA, the International Air Transport Association, started looking into and has been expressing for many years their disappointment with the very high prices on spare parts from original equipment manufacturers, in particular in the engine area.

And so IATA has been talking about this, the membership has been very upset about it. They had their annual general meeting and they all spoke about it. And I don't know how it ultimately got started but they went to the European Commission and they complained, and said that the cost [dispars] was inappropriate and there were certain unfair things happening there.

HEICO was not part of that complaint, but we are aware of it really just to the extent that everybody else is. So I don't know what the timing is on this. These things can take a long time. I don't know what possible remedies could occur. We have not baked any of that into our projections or guidance because honestly we have no idea what is happening.

We have confidence and conviction in our opinion as to what's happening there, and believe that IATA has a tremendous amount of credibility and tremendous information on this. So if they've complained, I believe that it's a very serious issue. But I don't know where it is going to end up, or the timing.

Got it. Thanks a lot, guys.

And I think Carlos also wanted to expand on something.

I just wanted to just make a point because I don't want you or the other investors on the call to lose sight of the fact that geography was mentioned earlier, you've asked Eric about repair and overhaul. We're very proud of the guys this quarter. They had growth, and last year we had growth in our recurring overhaul business, but it was the drag down, if you would, was highly concentrated. It was geographically concentrated.

And as we talked about at the end of December, we had a feeling, and our team members in that particular business area had a feeling, that was not a sustainable drag, if you would, or [deferral] of that repair type work down in that part of the marketplace. So we did see some improvements in that area, and we did have growth in our repair and overhaul and parts business, and we're very proud of the guys there, so I hope that adds a little color to your initial question.

Yes, definitely. Thanks a lot guys, nice quarter.

That was our final question. I will now turn the conference back over to you.

I want to thank all of the folks that have been on this call and for your interest in HEICO. Apparently a lot of people have begun to focus on the Company, and we're very happy. We work very, very hard. As you know we consider all shareholders partners. We're probably the largest shareholder, the Mendelson family, and our Executive Management Team, and the Company's 401(k) plan. So we have to lead by example, and as long as we do the right thing selfishly for ourselves, every one of our shareholders who we consider partners will continue to do well.

In that vein, somebody just gave me a paper that shows that the market approved of what we did. This morning we hit a new high in the HEI stock of $88 and on the HEI-A we were $75.90. So the stock market has recognized what all of you investors have recognized, and so many of you on this call have been long-term investors in HEICO. We thank you so much for your continued confidence. We try to earn it every day.

We look forward to speaking to you at the next Q2 conference call which will be sometime during the month of May. Thank you all, and if you have any questions, as you know, we are available, Eric, Victor, Carlos, me. We'll try to answer your questions. Thank you all, and thank you for your confidence.

This concludes today's conference call. You may now disconnect.