HEICO Corporation (NYSE:HEI) Q1 2024 Earnings Call Transcript

HEICO Corporation (NYSE:HEI) Q1 2024 Earnings Call Transcript February 27, 2024

HEICO Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the HEICO Corporation First Quarter 2024 Financial Results Call. My name is Samara and I’ll be today’s operator. 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 the severity, magnitude and duration of public health threats such as the COVID-19 pandemic, HEICO’s liquidity and the amount and timing of cash generation; lower commercial air travels, 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 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 creditors 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; 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 electronic industries which could negatively impact our costs 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 statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. Now, I’ll turn the call over to Laurans Mendelson, HEICO’s Chairman and Chief Executive Officer.

Laurans Mendelson: Thank you, Samara and welcome to everybody on this call. We thank you for joining us and we welcome you to the HEICO first quarter fiscal 2024 earnings announcement teleconference. I am Larry Mendelson and Chairman and CEO of HEICO Corporation. I am joined here this morning by Eric Mendelson, HEICO’s Co-President and President of HEICO’s Flight Support Group, Victor Mendelson, HEICO’s Co-President and President of HEICO’s Electronic Technologies Group; and Carlos Macau, our Executive Vice President and CFO. Before reviewing our operating results in detail, I would like to take a moment and thank all of HEICO’s talented team members for delivering another very, very strong quarter. Your continued focus on exceeding customer expectations and operating at peak performance level continued to fuel our excellent financial results.

I personally have never been more optimistic about the future of HEICO. I would now like to summarize the highlights of our first quarter fiscal ’24 record results. Consolidated operating income and net sales in the first quarter of fiscal ’24, improved by 39% and 44%, respectively as compared to the first quarter of fiscal ’23. These results reflect mainly a 12% organic net sales growth in Flight Support, commercial aerospace products and services as well as the impact from our profitable fiscal ’23 and ’24 acquisitions. Consolidated net income increased 23% to $114.7 million or $0.82 per diluted share in the first quarter of fiscal ’24 and that was up from $93 million or $0.67 per diluted share in the first quarter of fiscal ’23. Net income attributable to HEICO in the first quarter of fiscal ’24 and ’23 were both favorably impacted by a discrete income tax benefit from stock option exercises.

The benefit in the first quarter of fiscal ’24, net of controlling interest, was $13.3 million and that was up from $6.1 million in the first quarter of fiscal ’23. Consolidated EBITDA increased 43% to $224.4 million in the first quarter of fiscal ’24 and that was up from $157.1 million in the first quarter of fiscal ’23. I mean that is an enormous increase, if I say so myself. The Flight Support Group set an all-time quarterly net sales and operating income record in the first quarter of fiscal ’24, improving 67% and 63% respectively, over the first quarter of fiscal ’23. The increases principally reflect the impact from our fiscal ’23 acquisition of Wencor and 12% organic growth mainly attributable to increased demand within our aftermarket replacement parts and repair and overhaul parts and services.

Our net debt-to-EBITDA was 2.79x as of January 31, ’24 and that was down from 3.0x as of August 31, ’23. When we acquired Wencor, our pro forma leverage ratio was slightly above 3x. And we had projected pro forma leverage to be 2x within 12 to 18 months post-acquisition. At this time, I am pleased to report that we continue to remain on track to achieve this target. Cash flow provided by operating activities increased 46% to $111.7 million in the first quarter fiscal ’24 and that was up from $76.7 million in the first quarter of fiscal ’23. We continue to forecast strong cash flow from operations for fiscal ’24. In January ’24, we paid our regular semi-annual cash dividend of $0.10 per share and this represented our 91st consecutive semi-annual cash dividend since 1979.

In January ’24, we were honored to announce that I received the Kenn Ricci Lifetime Aviation Entrepreneur Award from the Living Legends of the Aviation Organization. The Living Legends of Aviation recognition is given to remarkable people of extraordinary accomplishment in aviation, including entrepreneurs, innovators, industry leaders, astronauts, record breakers, pilots who become celebrities and celebrities who have become pilots. I was profoundly humbled and honored that this storied and a unique organization would include me with such aviation and space pioneers for this special honor. However, in my opinion, the honor really belongs to HEICO’s 10,000-plus team members who are the ones that make HEICO the great company that it is. Now let me discuss our recent acquisition activity.

In December ’23, we entered into an exclusive license and acquired certain assets for the capability to support Boeing 737NG/777 cockpit display and legacy display products line from Honeywell International. We do expect the exclusive license and asset acquisition to be accretive to our earnings in the year following closing. The acquisition broadens our avionics capability and it’s another example of ways that HEICO has grown into adjacent markets to increase our overall value proposition to customers and the industry. At this time, I would now like to introduce Eric Mendelson who is Co-President of HEICO and President of HEICO’s Flight Support Group. He will discuss the first quarter results of the Flight Support Group. Eric?

Eric Mendelson: The Flight Support Group’s net sales increased 67% to a record $618.7 million in the first quarter of fiscal ’24, up from $371.3 million in the first quarter of fiscal ’23. The net sales increase in the first quarter of fiscal ’24 reflects the impact from our profitable fiscal ’23 acquisition of Wencor which continues to perform above our expectations as well as strong 12% organic growth. The organic net sales growth mainly reflects high teens organic net sales growth from both our aftermarket replacement parts and repair and overhaul parts and services product lines. The Flight Support Group’s operating income increased 63% to a record $136 million in the first quarter of fiscal ’24, up from $83.6 million in the first quarter of fiscal ’23.

The operating income increase in the first quarter of fiscal ’24 principally reflects the pre-mentioned net sales growth, partially offset by higher, as expected, intangible asset amortization expenses due to the Wencor acquisition well as increased inventory obsolescence expense. The Flight Support Group’s operating margin was 22% in the first quarter of fiscal ’24 as compared to 22.5% in the first quarter of fiscal ’23. The Flight Support Group’s operating margin before intangible amortization expense was 24.8% in the first quarter of fiscal ’24 versus 24.3% in the first quarter of fiscal ’23. The small decrease in operating margin principally reflects a slightly lower gross profit margin in the previously mentioned higher expected intangible asset amortization expense due to the Wencor acquisition partially offset by lower performance-based compensation expense.

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

Victor Mendelson: Thank you, Eric. The Electronic Technologies Group’s operating income was $55.3 million in the first quarter of fiscal ’24 — excuse me, jumped ahead. The Electronic Technologies Group’s net sales increased 12% to $285.9 million in the first quarter of fiscal ’24 up from $255.1 million in the first quarter of fiscal ’23. The net sales increase is mainly attributable to the impact from our fiscal ’23 acquisitions and a double-digit increase in organic net sales of our aerospace products, partially offset by lower organic net sales of our other electronics, medical and space products. We continue to forecast strong net sales and earnings growth for the remainder of fiscal ’24. The Electronic Technologies Group’s operating income was $55.3 million in the first quarter of fiscal ’24 as compared to $56.5 million in the first quarter of fiscal ’23.

We expect higher net sales and profit margins in the quarters ahead and over the long term. This is due to our shipment schedule supported by our near-record backlog, combined with the revenues we expect because of our new product research and development activities. The slight operating income decreased principally resulted from our subsidiary shipment schedules of our record backlogs with fewer shipment in the first quarter than scheduled in future quarters, something that was scheduled prior to the quarter start and is in line with our internal plan. For those familiar with our last earnings call and our public interaction since then, you will remember that we said to expect high results variability quarter to quarter this year with the first quarter being our weakest quarter.

So this proceeded just as expected. Naturally the less favorable product sales mix resulted in lower SG&A efficiencies also recognizing our large record backlogs and our forward growth potential, we increased new product research and development investment which increased expenses in the quarter so that we can gain revenue in future quarters. As I sit here today, I’m very pleased that we made those investments and that we continue to fully fund these activities which provide the important forward growth. Importantly our net sales increased an acquisition cost in the first quarter of fiscal ’23 related to the closing of an acquisition were beneficial to our results. The ETG’s operating margin was 19.3% in the first quarter of fiscal ’24 as compared to 22.2% in the first quarter of fiscal ’23.

This acquisition related amortization was around 400 basis point what we and others to be — consider to be our true margin was closer to 23.5%. Again we expect the margin, both before and after amortization to improve materially in the quarters ahead. The lower margin principally reflects what I just discussed namely the product sales mix due to the shipment schedule, higher new product research and development expenses as well as increased selling, general and administrative expenses as a percent of net sales which supports our forecasted strong net sales and earnings growth for the remainder of fiscal ’24, partially offset by the previously mentioned lower acquisition costs. For the full year, we expect SG&A expenses to decrease as a percentage of net sales as our net sales increase.

I now turn the call back over to Larry Mendelson.

Laurans Mendelson: Thank you, Victor. I think it should be clear to everyone on this call that Victor and we are expecting a quite different result from ETG from the second quarter through the end of the year. And in the first quarter, some people, I think, misunderstood and they said, “Oh, ETG is not doing well.” And I think Victor explained it very well. So you understand that it is a lumpy business and the sales and earnings should come through from the second to the fourth quarter. As we look ahead to the remainder of fiscal ’24, we continue to anticipate net sales growth in both the Flight Support and ETG principally driven by contributions from our fiscal ’23 and ’24 acquisitions as well as demand for the majority of our products.

Notably, we fully expect future ETG quarters to be materially stronger than the first quarter. In addition, we plan to continue our commitment to developing new products and services with further market penetration as well as maintaining our financial strength and our flexibility. In closing, I would again like to thank our incredible team members for their continued support and commitment to HEICO. Our strategy of growing a highly diversified portfolio of excellent businesses continues to produce favorable results for all shareholders. Our end markets are very healthy and fiscal ’24 is looking to be another great year. Thank you for your continued confidence. And as I said before, I have never been more bullish about HEICO’s future. One other comment.

We do not now give any guidance. Some analysts have asked us to give guidance. We prefer not to. However, I have said publicly that our goal is to grow net income 15% to 20% annually compounded. Over the last 30 to 33 years, I think, we have done that and the actual growth has been somewhere around 18% or 19%. I can tell you that based on everything that I know at this moment and based upon our — what we expect for the future of this year. I clearly am highly confident that we will attain that 15% to 20% growth in the current year and that without any future acquisitions which we might make. So with that, I would like to turn the call back to our operator, Samara and open the call for questions from listeners. I thank you again very much. Samara?

Operator: [Operator Instructions] We’ll take our first question from Robert Spingarn with Melius Research.

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Q&A Session

Scott Mikus: This is Scott Mikus on for Rob Spingarn. Eric, I wanted to ask you some of the U.S. airlines, they’ve readjusted their capacity growth plans for the year. Some of that’s due to aircraft delivery delays or the GTF issues but some of it’s — just are concerns related to the U.S. domestic market being overcapacitized. So are you seeing any change in order patterns from customers where maybe the low-cost carriers are slowing down their orders but the large network carriers, like United and Delta are accelerating their orders?

Eric Mendelson: So thanks for your question, Scott. With regard to what we see in the market, the market continues to be extremely strong across the board. I think yes, the large commercial carriers are particularly strong. There has been a little bit of weakness in — with some of the lower-cost carriers. But nothing really pronounced at this point. There are natural order patterns where things can get a little lumpy shift around. So I don’t want to — I wouldn’t want to predict any weakness there. Right now, there continues to be a shortage of parts. Airlines are still in need of parts, are still trying to grow their inventory. So we see the market as very strong.

Scott Mikus: Okay. Got it. And then I wanted to ask, you’ve owned Wencor for about a little more than half a year. So I was just wondering if you could share some of the best practices that Wencor has learned from HEICO? And what are some of the best practices that HEICO has learned from Wencor so far?

Eric Mendelson: Yes, that’s a good question. The Wencor acquisition has been exceeding expectations in every single area, the business, the people, the strategy, it’s been incredibly strong. And we had very high expectations for it and they are even beating those numbers. Specifically, looking at areas of best practices. I would say that HEICO is particularly strong in the technical arena. Wencor is also strong in the technical arena. But I think there are some things where Wencor has been able to benefit from us as well as HEICO benefiting from Wencor and other areas. And then in particular, in the e-commerce area. I think Wencor has been able to benefit HEICO in that area. So we see continued synergies without integration.

So we — our plan is to continue to operate Wencor for the time being or for the foreseeable future as an independent business. And that’s the DNA of HEICO. That’s how we operate all of the HEICO businesses and we want Wencor to continue, obviously, to have its own P&L, its own strategy, its own team members and HEICO is strongest when each of the individual business units take care of themselves and coordinate with the other ones. So I would say that I look at the cooperation between HEICO and Wencor is somewhat analogous between the cooperation, if you look at a number of the European airline groups. We look at Lufthansa and Swiss or Air France and KLM or British Airways and Iberia and they maintain their independence, their separate touch and feel and relationships with the customers, separate people but they coordinate some of the activities behind the scenes, making sure that they’re — the schedules and the product offerings are supportive of each other.

And that’s what we’ve been able to do very successfully. So Wencor continues as an individual autonomous business, no plan to change that. And we are making sure that we provide tremendous value to our customers as a result of making sure we don’t have, for example, product development overlap, where we rationalized some of the repair offerings in various centers of excellence focused on different products and technology. So our customers have been very happy as a result of the acquisition and are really excited about where we’re headed there. And I think they really want to reward us with a significant additional new business. They view HEICO in a very different light as a result of the Wencor merger.

Operator: And we’ll take our next question from Noah Poponak with Goldman Sachs.

Noah Poponak: Last quarter, you had talked about the ETG margin for the full year being around 24%, that segment operating margin. Does that stand such that you’d have one or two quarters above that? And I know you don’t give quarterly guidance but given the variability here, I don’t know if it makes sense to just speak to the shape of that over the remaining three quarters of the year?

Victor Mendelson: Sure. Noah, this is Victor. The answer to your question is yes. And as to the shape of it over the remaining quarters, I think that the year should build. I’m not sure yet that the fourth quarter is a little far out, whether the fourth quarter finishes above or a little less than the third quarter and the third is our high point or fourth is our high point, not sure about that. But at this point and based on the shipment schedules, that’s how we think it will play out.

Noah Poponak: Okay. And Eric, on the FSG margin, the full year look was around 21% on the GAAP segment operating margin. And I think you guys had also said you expected the first quarter to be the low point of the year. So I don’t know, maybe you could update us on how you see that playing out through the rest of the year or if there’s a new number for the full year, given what you did in the first quarter?

Eric Mendelson: Well, the first quarter was very strong at 22%. And when you add back the [indiscernible] amortization, we get to about 24.8%, so extremely strong. We anticipate continued strength. I think I want to be a little bit conservative going forward. We often go ahead and we come out with our budgets and our numbers and our folks end up beating those numbers. But maybe Carlos wants to shed some light specifically on that.

Carlos Macau: Noah, it’s Carlos. I don’t think my view on the segment — can you hear me okay? So I was going to say, I don’t think my mind has changed on what the segment should produce this year. Back in December when we were sort of looking out and I got the margin question. I felt like the FSG was probably between 21% and 22% OI margin, that’s what I felt the company would do for the year. We could always do better than that but that’s what we planned. And so — and we did plan on having a strong first quarter in the FSG. So I think that, that thesis continues to hold up. But of course, as we get into the second quarter and we get to the next call, we’ll I’ll see if I can tighten that range up for you.

Noah Poponak: Okay. I appreciate that. One other thing I wanted to ask, I guess, it’s kind of for everyone but you’re in this unique position now vis-à-vis PMA and pricing in the aftermarket that’s maybe more unique than we’ve seen in a long time because your peers in the — that build and sell spare parts have had such strong pricing for 2-plus years now. We don’t really know exactly how you price PMA, presumably, that gap has widened, maybe it has widened a lot. And so you have the opportunity to take more price than you normally do or take more share than you normally do or both. And I’m curious to hear you talk about how you will strategically manage which of those you want to go after and how you will look to triangulate that over the medium term here?

Eric Mendelson: Noah, that’s a great and insightful question. The short answer is I think we need to do both. We need to adjust pricing to reflect our increased costs and we also need to grow market share. So that is the strategy. We have a number of customers who have been purchasing parts at fairly old prices before there was cost inflation. So we need to make sure that we pass along our cost increases. And I think our customers are very understanding of that. Some customers get it and are just fine and go ahead and incorporate the other — the new pricing. Other customers want to have the discussion over it and we — obviously, we don’t show them what our costs are but we explain what’s happened to our costs and this is only reasonable.

So honestly, I think that our pricing has been a lot more conservative and gentle then it could be. Our competitors are substantially raising prices, we’re seeing now last night from a — I don’t want to call out the OEM but it’s an OEM that everybody knows and they increased price twice last year, once 10% and another time 18%. And by the way, I will mention it was not TransDigm. So I know people are very interested in the TransDigm story but it was not TransDigm. So it shows how pervasive the price increases are. So I think that we’ve been very mild. And I think, frankly, with costs going up and the need to spend additional dollars on new product development that it would be reasonable to have additional increases. And I think we’ll be able to capture market share at the same time.

So I don’t think those two are mutually exclusive. We’ve — if you talk to the airlines, I mean nobody wants the price increase, as you say. But the airlines all recognize that HEICO has been extremely gentle with regards to price increase. And frankly, in areas where we have been more restrictive on price increase, we anticipate significant share gains as well.

Operator: We’ll take our next question from Scott Deuschle with Deutsche Bank.

Scott Deuschle: Eric, did Boeing’s challenges in January have any impact to FSG Specialty Products growth in the quarter?

Eric Mendelson: Yes. I would say they did. Boeing had some challenges and as a result, the new bill has been impaired. So that definitely had an impact on specialty products. I would also like to point out that while specialty product sales were a little soft and caused the reported organic growth rate to be, if you will, understated because the aftermarket growth rate was very high teens. A lot of the — we’re very bullish on the future. And a lot of what specialty products does is on the defense side. And as you know, in a lot of missile defense and space programs, rocket motor programs, these are very long lead time items. So our order book is extremely strong. We’re very, very bullish on the future. We feel that we’re well embedded.

We’ve got some great secular trends we are the low-cost, high-quality, sole-source producer on most of the stuff and we think that the future will be very good. So I’m not at all concerned about the specialty products being down. And I think Boeing also will get their act together. I mean, obviously, they’ve got some challenges that we’ve all read about but Boeing is still a great company. And I think that they’ll get that all figured out and it will permit our specialty products to grow at sort of more historic rates.

Scott Deuschle: Okay. So it would be fair to think that maybe some of that Boeing related weakness is probably lingered in the February but the growth in the space and defense side allows you to return to growth overall in specialty products next quarter?

Eric Mendelson: I need to look at specifically with regard to next quarter but what you’re saying sounds logical.

Scott Deuschle: Okay. And then Victor, are you able to quantify how much R&D was up at ETG in the quarter? And then if there’s any specific areas of investment you can talk about, I think that would be pretty interesting to hear.

Victor Mendelson: It was pretty broad-based. There were places I think where somewhere I know that we invested more than in the past. But I would say pretty broad-based scenario which is good because I like to see — and we like to see that all of our companies are investing in R&D. R&D was up by about I believe in the quarter about 25%, 24%, something like that. So it was a significant increase for us.

Scott Deuschle: Okay. And then last question. Victor, were there any changes in your F-35 content with the shift to TR3 [ph]?

Victor Mendelson: By the way, it’s closer to 22%, I think, was the net increase for ETG alone in the quarter. Yes, that for ETG [ph] in the quarter. I’m sorry, the question you just asked. Could you repeat that, please?

Scott Deuschle: Yes. It was whether there are any changes in F-35 content with the shift to TR3 [ph]?

Victor Mendelson: I don’t think it’s material to us. We do have in a fuel business as F-35 content. But overall, it’s not a material change.

Operator: We’ll take our next question from Larry Solow with CJS Securities.

Larry Solow: Eric, thanks for the color on Wencor and also just the segment. Just a couple of follow-ups on that. So the high-teens growth, you’re experiencing — I think it’s relative comping to a mid-20s growth last year. So pretty remarkable, congrats to that. Obviously, end market demand sounds like it’s still growing. But can you give us a little more color on where else those gains are coming from? Just kind of bucketing market share gains? Are there obviously some of that’s still occurring. The inventory levels, you mentioned still low but are they building back up if some of that still creating some of the differences in to end market demand and the growth you’re reporting, you catch up the maintenance maybe? I’m just trying to figure out the — trying to gap the difference there.

Eric Mendelson: Yes. Larry, I’d be happy to answer that. The strength within site support on the aftermarket side has really been across the board. I would say, in general, a little more strength in the parts side as compared to the repair side. Airlines are finding the equipment hard. It’s more difficult to get things repaired but in general, I would say the parts side is a little bit stronger but the repair side is also doing very well as well. As far as market share gains, we continue to grow market share. Our customers are really happy with us. And speaking with our sales head yesterday, I have specific information from a number of customers that they really are very, very happy as a result of the Wencor acquisition. While HEICO was always a significant player in the space.

And so it was Wencor, the fact that we’ve come together and we can offer a broader product line, a broader suite of products is really significant. And a fair amount of energy was spent in each business focusing on capturing as much as it could. And now by creating more of these centers of excellence, where each business focus is on where it has a true competitive advantage it doesn’t need to, if you will, reinvent the wheel, makes a lot of sense. And our customers are really happy about that because we’re able to provide a much fuller suite of offering to the customers and they recognize that this is true structural advantage that they can benefit from as opposed to more niche-oriented strategy. So market share gains, we have had some pricing gains.

I don’t have a breakout between the two. But I wouldn’t say that market share is definitely the leading number there.

Larry Solow: Got it. And I appreciate that. And then just switching gears to question, Victor. Just on the quarter and the outlook, it sounds like aerospace had some good follow-through and it was a little slow last year, at least on deliveries but that just sounds like that’s continuing to return to growth mode. Just in terms of the other categories, I know it sounds like you mentioned a few there was just slower due time in electronic medical consumer space and those sound like they’re all higher margin categories. I think on the last call, you guys had mentioned that there would be some of those, I think maybe the electronics piece would be slower. Is that still the case? Has anything changed in terms of your sort of full year outlook for ETG in terms of revenue composition and growth?

Victor Mendelson: So overall, all in for the year right now, I think our expectations are pretty much what they were at the — during our last call. It is the general markets that all-in gave up ground in the quarter as we expected they would. We’re beginning to see some, what I’d call, the proverbial green shoots in a few of the businesses but we’re still not running at order levels higher than prior year. And I — as I kind of talked about before, I expect that sometime over the next couple of quarters, orders to start to reverse overall. And then — one second. Thank you. [Indiscernible] off here in the room. And then I would expect that if you factor in lead times onto the backlog — on to the orders and so on, as we get later in the year, that starts to turn overall in the right direction in terms of revenue.

Larry Solow: Got you. Okay. Great. And then just lastly, Carlos, I think the tax rate, a little lower this quarter. I know you usually get those stock comp benefit in Q1. And any change to the full year outlook?

Carlos Macau: No. I think for the full year, I continue to think we’ll run between 20% and 21%, Larry. I think the effective tax rate we have in the first quarter here is about what I expected. I thought we’d catch about half our effective rate for the year this quarter and then we make it up more normalized rate in Qs 2, 3 and 4 but no real surprises. It played out the way I thought it would slightly better than last year’s benefit but still in line with history and what we’ve seen in the past.

Operator: And we’ll take our next question from Peter Arment with Baird.

Peter Arment: Victor, maybe just a quick one on if you’re still seeing lingering impacts from the supply chain and that’s also a factor that’s kind of impacting you on the top line.

Victor Mendelson: Thanks for asking. It’s a good question. We’re not seeing much of it. It has really improved, whether it’s exactly back to normal. I’m not sure because I’m not sure what the new normal will be, in fact but I wouldn’t — I would say that at this point, supply chain is almost back to where it was. And the — the labor market is — has been challenging for a while and continues to be. And so I would say that impacts us as much, if not more, probably these days than the supply chain, just getting good, qualified people into the businesses.

Peter Arment: And maybe if you could just update us on how your [indiscernible] is doing after owning the business now for, I guess, almost a year, right?