Heico Corporation
Other securities:
HEI.A
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
This discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates if different assumptions were used or different events ultimately transpire.
Our critical accounting policies, which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended October 31, 2025. There have been no material changes to our critical accounting policies during the three months ended January 31, 2026.
Our business is comprised of two operating segments: the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and HEICO Flight Support Corp. and their respective subsidiaries; and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries.
Our results of operations for the three months ended January 31, 2026 have been affected by the fiscal 2025 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2025 and the fiscal 2026 acquisition as further detailed in Note 2, Acquisition, of the Notes to the Condensed Consolidated Financial Statements of this quarterly report.
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Results of Operations
The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Condensed Consolidated Statements of Operations (in thousands):
| Three months ended January 31, | |||||||||||||
| 2026 | 2025 | ||||||||||||
| Net sales | $1,178,582 | $1,030,222 | |||||||||||
| Cost of sales | 723,618 | 624,560 | |||||||||||
Selling, general and administrative expenses | 195,065 | 178,857 | |||||||||||
| Total operating costs and expenses | 918,683 | 803,417 | |||||||||||
| Operating income | $259,899 | $226,805 | |||||||||||
| Net sales by segment: | |||||||||||||
| Flight Support Group | $820,000 | $713,174 | |||||||||||
| Electronic Technologies Group | 370,675 | 330,315 | |||||||||||
| Intersegment sales | (12,093) | (13,267) | |||||||||||
| $1,178,582 | $1,030,222 | ||||||||||||
| Operating income by segment: | |||||||||||||
| Flight Support Group | $200,733 | $166,116 | |||||||||||
| Electronic Technologies Group | 73,246 | 76,456 | |||||||||||
| Other, primarily corporate | (14,080) | (15,767) | |||||||||||
| $259,899 | $226,805 | ||||||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||||
| Gross profit | 38.6 | % | 39.4 | % | |||||||||
Selling, general and administrative expenses | 16.6 | % | 17.4 | % | |||||||||
| Operating income | 22.1 | % | 22.0 | % | |||||||||
| Interest expense | (2.5 | %) | (3.2 | %) | |||||||||
| Other income | .1 | % | .1 | % | |||||||||
| Income tax expense | 2.3 | % | 1.3 | % | |||||||||
Net income attributable to noncontrolling interests | 1.2 | % | 1.3 | % | |||||||||
| Net income attributable to HEICO | 16.1 | % | 16.3 | % | |||||||||
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Comparison of First Quarter of Fiscal 2026 to First Quarter of Fiscal 2025
Net Sales
Our consolidated net sales in the first quarter of fiscal 2026 increased by 14% to $1,178.6 million, up from net sales of $1,030.2 million in the first quarter of fiscal 2025. The increase in consolidated net sales principally reflects an increase of $106.8 million (a 15% increase) to $820.0 million in net sales of the FSG and an increase of $40.4 million (a 12% increase) to $370.7 million in net sales of the ETG. The net sales increase in the FSG reflects strong organic growth of 12% and net sales of $18.7 million contributed by fiscal 2025 acquisitions. The FSG's organic net sales growth reflects increased demand within its aftermarket replacement parts, repair and overhaul parts and services, and specialty products product lines resulting in net sales increases of $59.5 million, $20.6 million and $7.8 million, respectively. The net sales increase in the ETG reflects strong organic growth of 6% and net sales of $21.5 million contributed by fiscal 2025 and 2026 acquisitions. The ETG's organic net sales growth is mainly attributable to increased demand for its other electronics, aerospace and defense products resulting in net sales increases of $8.1 million, $8.1 million and $3.4 million, respectively, partially offset by a decrease in demand for its space products resulting in a net sales decrease of $3.4 million. Sales price changes were not a significant contributing factor to the change in net sales of the FSG and ETG in the first quarter of fiscal 2026.
Gross Profit and Operating Expenses
Our consolidated gross profit margin was 38.6% in the first quarter of fiscal 2026, as compared to 39.4% in the first quarter of fiscal 2025, principally reflecting a decrease of 3.2% in the ETG's gross profit margin, partially offset by a .4% increase in the FSG's gross profit margin. The decrease in the ETG's gross profit margin principally reflects a less favorable product mix of defense products and the previously mentioned decrease in net sales of space products, partially offset by the previously mentioned increase in net sales of aerospace products. The increase in the FSG's gross profit margin principally reflects the previously mentioned higher net sales and a more favorable product mix within our repair and overhaul parts and services product line. Total new product research and development expenses included within our consolidated cost of sales were $31.9 million in the first quarter of fiscal 2026, up from $27.6 million in the first quarter of fiscal 2025.
Our consolidated selling, general and administrative ("SG&A") expenses were $195.1 million in the first quarter of fiscal 2026, as compared to $178.9 million in the first quarter of fiscal 2025. The increase in consolidated SG&A expenses principally reflects $7.5 million attributable to our fiscal 2025 and 2026 acquisitions and costs incurred to support the previously mentioned net sales growth resulting in increases of $5.3 million and $3.4 million in selling expenses and general and administrative expenses, respectively.
Our consolidated SG&A expenses as a percentage of net sales improved to 16.6% in the first quarter of fiscal 2026, down from 17.4% in the first quarter of fiscal 2025. The decrease in
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consolidated SG&A expenses as a percentage of net sales principally reflects efficiencies realized from the previously mentioned net sales growth.
Operating Income
Our consolidated operating income increased by 15% to $259.9 million in the first quarter of fiscal 2026, up from $226.8 million in the first quarter of fiscal 2025. The increase in consolidated operating income principally reflects a $34.6 million increase (a 21% increase) to $200.7 million in operating income of the FSG, partially offset by a $3.2 million decrease (a 4% decrease) to $73.2 million in operating income of the ETG. The increase in operating income of the FSG principally reflects the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth, and the previously mentioned improved gross profit margin. The decrease in operating income of the ETG principally reflects the previously mentioned decreased gross profit margin, partially offset by the previously mentioned net sales growth.
Our consolidated operating income as a percentage of net sales improved to 22.1% in the first quarter of fiscal 2026, up from 22.0% in the first quarter of fiscal 2025. The increase in consolidated operating income as a percentage of net sales principally reflects an increase in the FSG’s operating income as a percentage of net sales to 24.5% in the first quarter of fiscal 2026, up from 23.3% in the first quarter of fiscal 2025, partially offset by a decrease in the ETG's operating income as a percentage of net sales to 19.8% in the first quarter of fiscal 2026, down from 23.1% in the first quarter of fiscal 2025. The increase in the FSG's operating income as a percentage of net sales principally reflects a .8% impact from a decrease in SG&A expenses as a percentage of net sales, mainly reflecting the previously mentioned SG&A expense efficiencies and the previously mentioned improved gross profit margin. The decrease in the ETG's operating income as a percentage of net sales principally reflects the previously mentioned lower gross profit margin.
Interest Expense
Interest expense decreased to $29.5 million in the first quarter of fiscal 2026, down from $32.5 million in the first quarter of fiscal 2025. The decrease in interest expense was principally due to a lower weighted-average interest rate on borrowings outstanding under our revolving credit facility and a decrease in the amount of outstanding debt.
Other Income
Other income in the first quarter of fiscal 2026 and 2025 was not material.
Income Tax Expense
Our effective tax rate was 11.5% in the first quarter of fiscal 2026, as compared to 7.0% in the first quarter of fiscal 2025. The increase in our effective tax rate principally reflects a smaller tax benefit from stock option exercises recognized in the first quarter of fiscal 2026. We
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recognized a discrete tax benefit from stock option exercises in both the first quarter of fiscal 2026 and 2025 of $22.3 million and $27.2 million, respectively.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace Holdings Corp. and the noncontrolling interests held by others in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $14.6 million in the first quarter of fiscal 2026, as compared to $13.6 million in the first quarter of fiscal 2025. The increase in net income attributable to noncontrolling interests principally reflects higher allocations of net income to noncontrolling interests as a result of certain fiscal 2025 acquisitions in which noncontrolling interests are held.
Net Income Attributable to HEICO
Net income attributable to HEICO increased by 13% to a record $190.2 million, or $1.35 per diluted share, in the first quarter of fiscal 2026, up from $168.0 million, or $1.20 per diluted share, in the first quarter of fiscal 2025 principally reflecting the previously mentioned higher consolidated operating income.
Outlook
As we look ahead to the remainder of fiscal 2026, we expect continued sales momentum across both the FSG and ETG, supported by organic demand for our products, together with the impact of recent acquisitions. We remain focused on pursuing selective acquisition opportunities that align with our growth strategy. Our disciplined approach to financial management continues to emphasize long-term shareholder value through a combination of strategic acquisitions and organic growth, while preserving financial strength and flexibility.
Liquidity and Capital Resources
Our principal uses of cash include acquisitions, interest payments, capital expenditures, cash dividends, distributions to noncontrolling interests and working capital needs. We continue to anticipate fiscal 2026 capital expenditures to be approximately $80 to $90 million. We finance our activities primarily from our operating and financing activities, including borrowings under our revolving credit facility. The revolving credit facility and senior unsecured notes contain both financial and non-financial covenants. As of January 31, 2026, we were in compliance with all such covenants and our total debt to shareholders’ equity ratio was 54.7%.
Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our revolving credit facility will be sufficient to fund our cash requirements for at least the next twelve months.
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Operating Activities
Net cash provided by operating activities was $178.6 million in the first quarter of fiscal 2026 and consisted primarily of net income from consolidated operations of $204.8 million, depreciation and amortization expense of $51.0 million (a non-cash item), $11.3 million in share-based compensation expense (a non-cash item), and net changes in other long-term liabilities and assets related to the HEICO Corporation Leadership Compensation Plan (the "LCP") of $10.1 million (principally participant deferrals and employer contributions), partially offset by a $120.3 million increase in net working capital. The increase in net working capital primarily reflects a $107.2 million decrease in accrued expenses and other current liabilities, mainly reflecting the payment of fiscal 2025 accrued performance-based compensation, distributions to participants of the LCP and the payment of payroll taxes arising from withholding requirements on stock option exercises, as well as a $17.1 million increase in inventories to support an increase in consolidated backlog.
Net cash provided by operating activities decreased by $24.4 million in the first quarter of fiscal 2026 from $203.0 million in the first quarter of fiscal 2025. The decrease is principally attributable to a $60.6 million increase in net working capital partially offset by a $23.2 million increase in net income from consolidated operations and a $14.5 million increase in the deferred income tax provision.
Investing Activities
Net cash used in investing activities totaled $447.0 million in the first quarter of fiscal 2026 and related primarily to an acquisition of $441.4 million, LCP funding of $14.0 million and capital expenditures of $13.5 million, partially offset by $22.7 million in proceeds from corporate-owned life insurance policy withdrawals within the LCP. Further details regarding our fiscal 2026 acquisition may be found in Note 2, Acquisition, of the Notes to Condensed Consolidated Financial Statements.
Financing Activities
Net cash provided by financing activities in the first quarter of fiscal 2026 totaled $309.6 million. During the first quarter of fiscal 2026, we borrowed $443.0 million under our revolving credit facility, which was partially offset by $103.0 million in payments made on our revolving credit facility, $16.7 million of cash dividends paid on our common stock, $7.2 million of distributions to noncontrolling interests, $4.5 million of redemptions of common stock related to stock option exercises and $4.1 million of payments to acquire certain noncontrolling interests.
Other Obligations and Commitments
There have not been any material changes to our other obligations and commitments that were included in our Annual Report on Form 10-K for the year ended October 31, 2025.
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New Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies - New Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements for additional information.
Guarantor Group Summarized Financial Information
On July 27, 2023, we completed the public offer and sale of senior unsecured notes, which consisted of $600 million principal amount of 5.25% Senior Notes due August 1, 2028 (the "2028 Notes") and $600 million principal amount of 5.35% Senior Notes due August 1, 2033 (the "2033 Notes" and, collectively with the 2028 Notes, the "Notes"). The Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of our existing and future subsidiaries that guarantee our obligations under our revolving credit facility ("Credit Facility") (the “Guarantor Group”). We were in compliance with all covenants related to the Notes as of January 31, 2026.
The Notes were issued pursuant to an Indenture, dated as of July 27, 2023 (the “Base Indenture”), between HEICO and certain of its subsidiaries (collectively, the "Subsidiary Guarantors") and Truist Bank, as trustee (the “Trustee”), as supplemented by a First Supplemental Indenture, dated as of July 27, 2023 (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between us, the Subsidiary Guarantors and the Trustee. The Notes are direct, unsecured senior obligations of HEICO and rank equally in right of payment with all of our existing and future senior unsecured indebtedness. Each Subsidiary Guarantor is owned either directly or indirectly by the Company and jointly and severally guarantee our obligations under the Notes. None of the Subsidiary Guarantors are organized outside of the U.S. A list of Subsidiary Guarantors is incorporated by reference to Exhibit 22 to the Form 10-K for the year ended October 31, 2025.
Under the Indenture, holders of the Notes will be deemed to have consented to the release of a subsidiary guarantee provided by a subsidiary guarantor, without any action required on the part of the Trustee or any holder of the Notes, upon such subsidiary guarantor ceasing to guarantee or to be an obligor with respect to the Credit Facility. Accordingly, if the lenders under the Credit Facility release a subsidiary guarantor from its guarantee of, or obligations as a borrower under, the Credit Facility, the obligations of the subsidiary guarantors to guarantee the Notes will immediately terminate. If any of our future subsidiaries incur obligations under the Credit Facility while the Notes are outstanding, then such subsidiary will be required to guarantee the Notes.
In addition, a subsidiary guarantor will be released and relieved from all its obligations under its subsidiary guarantee in the following circumstances, each of which is permitted by the indenture:
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•upon the sale or other disposition (including by way of consolidation or merger), in one transaction or a series of related transactions, of a majority of the total voting stock of such subsidiary guarantor (other than to us or any of our affiliates); or
•upon the sale or disposition of all or substantially all the property of such subsidiary guarantor (other than to any of our affiliates or another subsidiary guarantor);
provided, however, that, in each case, such transaction is permitted by the Credit Facility and after giving effect to such transaction, such subsidiary guarantor is no longer liable for any subsidiary guarantee or other obligations in respect of the Credit Facility. The subsidiary guarantee of a subsidiary guarantor also will be released if we exercise our legal defeasance, covenant defeasance option or discharge the Indenture.
We conduct our operations almost entirely through our subsidiaries. Accordingly, the Guarantor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Guarantor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities will have a direct claim only against the Guarantor Group.
The following tables include summarized financial information for the Guarantor Group (in thousands). The information for the Guarantor Group is presented on a combined basis, excluding intercompany balances and transactions between us and the Guarantor Group and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Guarantor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items. The consolidating schedules are provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.
| As of | As of | |||||||||
| January 31, 2026 | October 31, 2025 | |||||||||
| Current assets (excluding net intercompany receivable from non-guarantor subsidiaries) | $1,988,591 | $1,927,805 | ||||||||
| Noncurrent assets | 5,229,478 | 5,280,470 | ||||||||
| Net intercompany receivable from/ (payable to) non-guarantor subsidiaries | 261,341 | 260,672 | ||||||||
| Current liabilities (excluding net intercompany payable to non-guarantor subsidiaries) | 671,677 | 721,365 | ||||||||
| Noncurrent liabilities | 3,085,368 | 2,751,782 | ||||||||
| Redeemable noncontrolling interests | 334,751 | 337,818 | ||||||||
| Noncontrolling interests | 68,161 | 63,792 | ||||||||
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| Three months ended | |||||||||
| January 31, 2026 | |||||||||
| Net sales | $996,964 | ||||||||
| Gross profit | 375,555 | ||||||||
| Operating income | 222,134 | ||||||||
| Net income from consolidated operations | 187,636 | ||||||||
| Net income attributable to HEICO | 176,425 | ||||||||
| Three months ended | |||||||||
| January 31, 2026 | |||||||||
| Intercompany net sales | $3,780 | ||||||||
| Intercompany management fee | 984 | ||||||||
| Intercompany interest income | 2,355 | ||||||||
| Intercompany dividends | 11,112 | ||||||||
Forward-Looking Statements
Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not clearly historical in nature may be forward-looking and the words “anticipate,” “believe,” “expect,” “estimate” and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission or in communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, concerning our operations, economic performance and financial condition are subject to risks, uncertainties and contingencies. We have based these forward-looking statements on our current expectations and projections about future events. All forward-looking statements involve risks and uncertainties, many of which are beyond our control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Also, forward-looking statements are based upon management’s estimates of fair values and of future costs, using currently available information. Therefore, 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 to our costs to complete contracts;
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•Governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales;
•Our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth;
•Product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales;
•Cybersecurity events or other disruptions of our information technology systems could adversely affect our business; and
•Our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals, and achieve operating synergies from acquired businesses; customer credit risk; interest, foreign currency exchange and income tax rates; and economic conditions, including the effects of inflation, within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues.
For further information on these and other factors that potentially could materially affect our financial results, see Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended October 31, 2025. 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.
Next expected filings
- ~2026-05-28 10-Q expected by 2026-06-09 (in 27 days)
- ~2026-08-26 10-Q expected by 2026-09-07 (in 117 days)
- ~2026-12-21 10-K expected by 2026-12-31 (in 234 days)
- ~2027-02-26 10-Q expected by 2027-03-10 (in 301 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
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