Carlos Macau: Yes. I would just say, Michael, as I’ve said over the past several quarters, the FSG continues to grow at a fast pace. All verticals within the Flight Support Group are growing at a fast pace. And we still haven’t settled into what I’ll call our footprint where the mix sort of normalizes. So until that happens, we’re going to have movement in the margin, plus and minus. This quarter, it was 22%. I think I’ve been pretty clear that I think that on a long-term basis, we might settle in around that point and then grow gradually from there. I don’t know if we’re at that point yet because I do think there’s some more growth to come that may be — that may have the verticals growing at different rates that messes with mix a little bit.
But I do think if you look at the last decade, the FSG, the one thing that’s been pretty consistent is the ECA margin gains is just about every year. And it’s not large gains. It’s just steps, right? Leveraging our fixed costs, it’s new products and things like that. I expect that pattern to continue once we settle into our, what I’ll call it, normal footprint or mix for the segment.
Michael Ciarmoli: Okay. Perfect. And just one more on housekeeping just to kind of maybe level set us for modeling. I mean looking at the fiscal fourth quarter, two months contribution from Wencor. I mean, was this sort of — if you can maybe give us a sense, has it been sort of just under $200 million quarterly revenue run rate? Or what can we expect from the Wencor contribution in this fourth quarter?
Carlos Macau: I think that’s a good question. What I I’ll give you this guidance. We expected when we put — when we did the deal that Wencor would do, pro forma sales around $724 million in ’23, and we still expect that. So I mean, I guess you could divide that number by four and come up with a quarterly run rate. But that’s what we continue to expect. And the truth is they’ve done a little better since we’ve acquired them. But I think for modeling purposes, if you take what we already published, the $724 million divided by four that will give you a quarterly run rate for now. And once we get through Q4, and we have our sea legs under us on the acquisition, we’ll give some better thoughts at that point.
Operator: Our next question comes from Ken Herbert with RBC Capital Markets. Please go ahead.
Ken Herbert: Maybe, Eric, if I could start with you with another question on Wencor. Can you talk a little bit about how that business has grown organically over the last couple of years coming out of the pandemic? And how should we think about with the Wencor business, the sort of the organic growth profile of that business over the next few years, maybe either relative to FSG at large or relative to some of the specific product lines within your business?
Eric Mendelson: Ken, I’d be happy to answer that. I would say that one quarter’s growth rate has been very similar to HEICO’s very comparable. They’ve done a great job in growing the PMA business, the repair, the distribution, the defense. So it’s been very, very similar to HEICO. So — and their operating philosophies, so similar to HEICO. That’s why I think that there’s going to be immediate opportunities to start working together. As a matter of fact, one of our businesses just send me an e-mail on Friday, he placed a $400,000 order with Wencor on a bunch of stuff. They didn’t even know Wencor supplied before we started introducing some of the various folks. So I think there’s going to be a lot of opportunity there. And — but the growth rates, I would say, are really quite similar.
Wencor has been extraordinarily aggressive in its markets. And it’s sort of interesting that HEICO, Wencor sort of didn’t bump up against each other very much. There’s been relatively little overlap, and it’s been in different areas. So, I think it is sustainable.
Ken Herbert: That’s great. And as you look at the Encore business and you look out over the next few years and obviously, the distribution, the repair and the PMA lines within Wencor. Are there any particular parts of the business that you’re maybe more bullish about? Or where you see some really unique opportunity to take share? How should we think about the various pieces of Wencor and the outlook over the next couple of years?
Eric Mendelson: Yes. I think they’re very well positioned in each of the businesses. PMA is very strong and in areas complementary to HEICO in a lot of products that HEICO is not in. So, I think that by having a bigger supply basket that we can offer to our customers, we’re going to generate a lot of value. Likewise, on the repair side, Wencor operates in a very decentralized autonomous entrepreneurial fashion, and they have focused in areas where HEICO wasn’t by and large. So, I think that that’s going to be very strong. Distribution has been phenomenal. They’ve captured a lot of lines, and they have a great relationship with their distribution partners and they’ve got a very robust pipeline. So, I think that’s going to be good.
And then in the defense market, they’re relatively new to that, and they found some defense areas where we haven’t been planning. So it’s really adding to the product line. So I don’t mean to not answer the question, but I would say I’m very optimistic on all four of Wencor’s. And then really, HEICO’s vertical, which I’m very also optimistic on, is our specialty products because Wencor doesn’t manufacture things themselves, and they buy a lot of stuff. And the HEICO Specialty Products group manufactured, I mean that’s our specialty to manufacture these basically, source-approved products. And I think that we’re going to be able to make a lot of stuff for Wencor. Not necessarily that they’re going to resource existing suppliers. They’re very loyal to their existing suppliers.
But I think on a go-forward basis, in the time when capacity is very tight, they’re already asking our businesses to make product for them. So, I think our Specialty Products business is also going to be a beneficiary. But that’s going to be over like a five-year period because it takes a while to get all of that manufacturing product digested. But I think it’s going to be all across the Flight Support Group’s five sort of operating verticals.
Operator: I’ll take our next question from Sheila Kahyaoglu with Jefferies. Please go ahead.
Sheila Kahyaoglu: So, I wanted to go back to the same line of questioning you’ve had over the last few questions. Maybe on Wencor, just maybe touch upon the opportunity, Eric, you’ve been talking about a lot of the revenue synergies and what portion of their business is distribution for their own PMA parts versus third parties? And the same thing for HEICO, and how that kind of results in the delta revenue per employee, which is almost double HEICOs?
Eric Mendelson: Yes. So as you’re aware, Sheila, so we disaggregate revenue into three areas: parts; repair; and specialty products. So, Wencor’s business is going to be included in the parts and the repair section of the flight support numbers. So — and my guess is that it’s probably going to be roughly 1/3 repair, roughly 2/3 parts. And the parts includes both distribution — maybe a little bit more on the parts side. The parts include distribution as well as PMA. So they’re all growing very well that there’s tremendous synergy opportunity between these businesses. So I think they’re going to continue to do extraordinarily well. And as you know, there’s a big interplay between those various areas because the repair businesses, obviously, require parts in order to repair their products and those come in, in the form of distributed product as well as PMA product.
So I think it’s going to be very strong there. That already gives you an idea, roughly, let’s just say 70 — one quarter is roughly, 70% parts, 30% repair in that general area.
Sheila Kahyaoglu: Okay. And Eric, another one for you, sorry, I’m just keeping it to you for today. There’s this thesis out there that aftermarket is softening and decelerating for whatever reason. How do you guys model the trajectory of FSG in the long being of steer? Is it just that of warranty aircraft? Or is it individual sales? Can you give us your thoughts on how you think the overall aftermarket business is going to grow from here?
