Eric Mendelson: Yes, I think that’s fair. I mean, our business is always want to gain market share. We always believe in an expansionary opportunity. We don’t work out of scarcity and we think that tomorrow always has greater opportunity than today. Having said that, we’ve got to make sure that we recapture our costs, and we maintain and grow our margins a bit. So I think due to the efficiency that we’ve got in the businesses, the operating leverage, I would anticipate that we’re going to continue to move in a positive direction while continuing to generate huge value for our customers. I mean, we save our customers a lot of money. We treat them very, very well. They know that. And I think that’s why, frankly, they were so supportive of the Wencor combination these two companies coming together is something which is really going to be very helpful to our customers.
Operator: Our next question comes from Larry Solow with CJS Securities. Please go ahead.
Lawrence Scott: Great. And I echo my congrats on a good quarter and obviously, the largest acquisition in your history. Just sticking with the Wencor theme for a couple of questions. Eric, I know you don’t give specific — but it feels like on synergies and accretion immediately were targets, but it feels like this acquisition, more than many, it’s larger, obviously, but it just feels like one plus one equals three in many places more than your usual acquisition. Just kind of trying to want to talk through some of the complementary things and where you see some of the combination really benefiting HEICO the most.
Eric Mendelson: Thanks. I agree with you. I think that this one is a uniquely synergistic acquisition. It’s something that we had to do, makes us a stronger competitor, much more efficient, brings more products to our customers. The other thing, Larry, that it does is as we share best practices, and we’ve already started doing this. Each company sort of focused in different areas. And I think there’s a tremendous amount that we can learn by sharing those best practices and going to what I call the highest common denominator. If we are so fortunate as to have operating efficiencies, that would really be great news, one, because our costs would go down. But two, the combined HEICO and Wencor have over 100 unfilled job openings.
And we’ve learned that our best and most productive team members typically come from inside, from inside of the businesses, they understand the culture. And we think that there’s going to be great opportunities for the HEICO and the Wencor team members to take on expanded roles going forward. So, I think when you put all of that together, hopefully, the need — we won’t have to go out and hire as many people from the outside. And instead, we can promote from within. I think we’re really in a very unique opportunity here. I want to be careful and not get too far over our skis before having the opportunity to get into the details because it’s all detail driven. We don’t come out with a model and say, okay, we expect you from the corporate office to cut cost by x and raise price by y, and do that.
Some companies do that. It’s extremely effective for them. What we have found in our very competitive businesses is the best thing is just to make the right long-term operating decisions. And if you do that, you plant the seeds and you reap the benefits for years to come. And so you’ve been around HEICO for a long time. And I don’t think any of us back in 2018, 2019 thought that we would be increasing our operating margins by 300 basis points from ’19, 400 basis points from ’18 just through our standard operating procedure. So, I think that we’ve got that opportunity. Wencor is extraordinarily well run. They’ve got a DNA so similar to HEICO. They’re very focused on the customer, very focused on efficiency getting it done, jumping through hoops for the customers.
So there couldn’t be a better marriage. So I couldn’t be more optimistic. Everything that we had hoped for in the acquisition is proving true. So, we’re — I think we’re well on our way.
Lawrence Scott: Great. I appreciate all that color. And then maybe switching gears real fast. Victor, just you guys mentioned, obviously, defense has been a little bit of a laggard year-to-date more on the delivery side than on the bookings. Could you maybe speak to some of your other markets as well as defense bookings on a go-forward basis, kind of where we stand there? And just on the margin — segment margin. I know obviously, Exxelia is impacted margins somewhat. But as defense comes back, could we expect maybe a little bit of a rebound off of kind of these 22%, 23% numbers that we’ve seen in the last two quarters?
Victor Mendelson: So, yes, a couple of things, I mean the defense businesses that we’re seeing orders increase in those particular businesses tend to be our higher-margin businesses. So what I would expect that this kind of 28% EBITA margin, probably at some point over the next six months starts to tick higher, though I want to see that and we’re doing budgets now and we’re going through our budget cycle. So I want to really see that for sure. But that’s kind of how it feels now. Commercial Aviation, I would expect to remain strong. A variety of space businesses for us, I think will remain strong from what I see orders being healthy. I think the other electronics, the other high-end electronics, as I said, I think, in the last two calls, those, I would expect to be softer and they’re more tied to, let’s say, the general economy and their own different cycles than the other businesses.
And I think that will take a little bit of time to cycle through more than six months.
Operator: We’ll take our next question from Michael Ciarmoli with Truist Securities. Please go ahead.
Michael Ciarmoli: Congrats on the — getting the deal done. Good results, as always. Maybe Eric or Carlos, you referenced kind of the historical FSG margins here a couple of times and how you’ve exceeded kind of those, if we were to say, they’d be assumed prior peaks, I guess you’re not going to give specifics, but with Wencor, with the potential synergies? And I guess as you look forward, do you think you’ve got room to push these FSG margins even higher once you kind of fully extract all those synergies with Wencor and maybe penetrate even further on both revenue and cost synergies?
Eric Mendelson: Good morning, Michael, and thank you for your comments. This is Eric. First of all, the short answer is yes. I want to be careful as to not get out and set expectations very high because we are in right now the process of HEICO understanding how the Wencor businesses operate, Wencor understanding how the HEICO businesses operate. So it’s very, very important. We did not set out — when we increased margins over the last five years by 400 basis points, we didn’t do that by, if you will, setting a goal and then going towards that goal. Instead, what we did was made sure that we had really capable, hungry, talented, hard-working, honest people running each of their businesses and doing the best that they could possibly do.
And that’s exactly how Wencor operates. That’s how HEICO continues to operate. So I personally am hopeful that we continue to increase these margins as time goes on. But I want to be careful as to not get ahead of ourselves and start predicting what those numbers are going to be. I’d rather — and it’s not a matter of under promising and over delivering. It’s a matter of truly not knowing. We just make the right decisions and we do the right things. And that lays the foundation for a terrific groundswell of opportunity. So, I think it’s important to go ahead and do that and continue doing that. But yes, I think the margins are going to increase. Now we do have, of course, the amortization that’s coming from the Wencor acquisition, and Carlos can get into that.
It’s really important that everybody model that. But of course, that’s a non-cash charge. It has nothing to do with the operating income of the business. I mean that’s non-sensical charge, which actually we get a tax benefit from. So — but yes, I think our margins are going to continue to do well. Carlos, I don’t know if you want to get into some of the specifics there.
