Eric Mendelson: Yes, it’s a good question, Bert. We don’t have that many new customers and that’s pretty much because we deal with everybody. So occasionally, when an airline gets formed, there can be a new one. I would say that our biggest opportunity is to continue to increase our market penetration with our existing customers. So that really is where the big opportunity is as opposed to new ones. I mean we do get new ones but we’re pretty much dealing with everybody in the world. So like a new airline gets created, there wouldn’t be that type of opportunity.
Bert Subin: And just a clarification there, Eric, just in terms of the pricing, if you’re having sort of greater market share gains or market penetration, is that a different sort of function like if you’re selling an existing product to an existing customer, you’re pricing that, I guess, more gently in terms of just passing through inflation instead of maybe into market. But if you’re selling them a new product, is that an opportunity when you think about margins?
Eric Mendelson: The answer is yes. So if a customer is buying a product and it’s under contract, then obviously, they would have price protection for the terms of the contract, the duration of the contract if that’s what it’s provided for. And of course, there are different things which matter to different customers. So we’re very accommodating there. However, if a customer — if that customer wants to start buying a part that they haven’t purchased, then they would get a price based on the new list price as opposed to what the old price was. So there’s definitely a big incentive to get started and get locked in with us as early as possible.
Bert Subin: Okay. Got it. Super help, Larry. Just one follow-up. Were you reaffirmed your view towards 15% to 20% earnings growth that you sort of highlighted last quarter for FY ’24, at least based on what you’re seeing today. If we were to get to the end of the year and you were to outpace, I guess, on the positive side, the 20% mark, I’m just curious if you think that would be more a function of FSG, ETG or faster debt paydown?
Laurans Mendelson: Well, it could be the result of all 3. And however, we try to control earnings growth. We really do. And HEICO, I think investors like consistency. I know we’re probably the largest single investor in our company to get 401(k) and Carlos and — so we like consistency. We don’t like to go up 1 year, down the other. In order to do that and to generate cash flow, so we don’t get over leverage. We’d like to continue to be within 15% to 20%. So it is possible we could go over 20%. At this point, everything I know in my — our own thought projections, we will be within 15% to 20% — would we go over it, it’s possible. But at this moment, I wouldn’t predict that. Again, I am conservative. And however, I do say that my own guesstimate is that we will be within 15% to 20%.
So I don’t know if that answers your question. But the other thing is I see that both of our businesses are really very strong. You’ve heard the whole story. And Victor has described the first quarter of ETG is really a weak quarter because we couldn’t ship and these various things. The backlog supports a huge increase from the second to the fourth quarter. So we should see the ETG definitely level out and return to what I would call reasonably normal profitability. Flight Support similarly is very strong, too. And with the Wencor acquisition and the possibilities of gaining some of the synergies which we’re doing very slowly and we want to build it in. But it’s a long answer to your question but I really think at this point, we’ll be within 15% to 20% growth.
And if we go over, I can’t predict who might do it.
Operator: We’ll take our next question from Louis Raffetto with Wolfe Research.
Louis Raffetto: Carlos, you talked about expecting, I guess, FSG to be pretty strong in 1Q. Was there anything specific there on mix? I’m just trying to bridge sort of the 100 basis point clean margin sequential improvement with sales that weren’t sort of too dissimilar from last quarter?
Carlos Macau: There was — I would say that the — we had strong performance in parts is kind of leading the pack. The repair was close second. Specialty products were soft and went behind. I think that based on shipments. That business is a little more predictable, believe it or not, than the parts and repair business are. So we had anticipated that the specialty products has slowed down slightly in Q1 and it did and we have expectations, it’s going to be fine for the rest of the year. But I don’t — there is — if your question is, is there any one-off or strange mix? No, this has pretty much played out the way I thought it would.
Louis Raffetto: All right. Great. And then, Victor, just one for you. You laid out strong aerospace in the quarter and then some of those other markets. I didn’t hear anything on defense. So I know it’s a big part of the business, just making sure how that did in the quarter. You’ve seen — I know you kind of have seen some sequential improvement. Does that continue this quarter? Did we step back at all?
Victor Mendelson: Yes, Louis, it’s continued overall all-in to grow. And so what I was segmenting out was the areas that were weak as before but defense is as we expect and moving in the right direction.
Louis Raffetto: All right. Great. And then, Larry, just one for you. you kind of talked about balancing M&A and leverage. So I guess as we think about the rest of the year, is really — would you be willing to go above 3x leverage if you saw a deal that would put you there? Or is that kind of a hard limit?
Laurans Mendelson: The answer is if it was super sensational and it really added to the bottom line and we looked at it and the payback as a result of it would drop us below the 3x back into the 2x area, we might consider it. We’re very careful with debt and also interest rates are very, very high. So to make these acquisitions now because of interest rates, it’s a little bit harder. So to answer your question, it would have to be something sensational to make us go above 3x. And so far, I have not seen something so sensational. So I think it’s highly unlikely but as we get from, say, just under 3x as we head to 2x which we estimate in the press release, we said 12 to 18 months from the time we incurred the debt and that’s — we believe that’s accurate.
But along the way, we might find, as we did with Honeywell, a very accretive cash flow and EPS acquisition which would actually make the ratio, if you do the arithmetic, you make the ratio of debt-to-EBITDA would go down because of the earnings that it would produce, we would do that. So again, that’s why I say it takes a lot of thought process. We just don’t make acquisitions willy-nilly. And remember one thing, that the Mendelsons as a family and our 401(k) we’re there to protect that nest egg [ph]. And we’re going to be very careful in incurring any kind of debt and we don’t want to get into any kind of financial problem. We have great cash flow. We have a great business. It’s growing nicely. So we’ll be very careful with that debt. I don’t know if that answers your question.
Operator: And there are no additional questions.
Laurans Mendelson: Well, I would like to again thank everyone on this call for their interest in HEICO. We are available; if you have other questions, you can contact Carlos, Eric, Victor, myself. And if you don’t, we look forward to speaking to you on the second quarter earnings teleconference. That’s the end of this teleconference. And again, thank you. Have a wonderful day.
Operator: And this concludes today’s call. Thank you for your participation. You may now disconnect.
