Eric Mendelson: Well, for us, the aftermarket business is extremely strong. Back in last December, I thought that even though we weren’t seeing any softening, that a softening would be inevitable and would come, and I was wrong. Things remain extremely strong. And I think that is a result of us capturing share, more people wanting to do more things with us. And I think, frankly, the future for us is very good. We don’t see a softening as of now. And our backlog is tremendous. Some of our backlogs in some of the businesses are 2x the historical rate. So things are really strong. You’ve got an older fleet, which requires a lot of very expensive parts. And a lot of these, you can’t MEL a lot of these components, and you’ve got to get them fixed.
And I think things are continuing to remain strong. Yes, the day will come when we come off the top of it and the whole industry comes off the top a little bit and does a little bit of a dip. But I think, frankly, the industry is very, very well positioned and is going to go from strength to strength here.
Operator: And the next question will come from Josh Sullivan with the Benchmark Company. Please go ahead.
Josh Sullivan: Just the comments around using strong cash flow to invest in R&D. As you integrate Wencor and explore new value parts or PMA opportunities, should we expect a development cycle from the time you increase kind of that investment in PMA development to the time of FA approvals, any R&D cycle to think about as you integrate here?
Eric Mendelson: I don’t think so. I think that the cycles are pretty short at both HEICO and Wencor. I think actually, that’s probably one of the things that we may be able to help win quarter shorten some of the cycles. But I would say, in general, the cycles are very similar. I don’t think there’s going to be a major change in new product development spending. We’re just going to continue doing the things that we’ve always done. And I think it’s going to be very consistent. But by sort of putting together these baskets of products, it’s just becoming a tremendous value to our customers. This is something that they really need — they’ve expressed a lot of frustration when they can’t get a part or they can’t get a component.
There have been a lot of shortages, both HEICO and Wencor, notwithstanding our big backlogs I think, have done a really good job with on-time delivery relative to the industry. And that’s why I think our customers want to reward us with more business.
Josh Sullivan: Got it. Got it. And then just the comments around — you called out the majority of products driving growth. But curious within FSG, what types of products were in that minority which didn’t drive growth or any common themes there?
Eric Mendelson: Yes. There have been a couple of businesses, I would say, more in the specialty products area, where basically commercial OEM products, you’re familiar with the — sort of the vagaries of the commercial build market. Certain things are hot, certain things are not. So I would say there’s been a little bit of a slowdown in some of that. I would say that’s probably the area that has been if you will the slowest. But the backlogs are very strong. And I can tell you over on the defense side of our Specialty Products business, backlogs are enormous, and we’re very optimistic for future sales. So I think we’re very, very well positioned. I mean frankly, if we had the capacity right now, we could — our specialty products in a number of businesses, could ship significantly more than they are.
I mean we are just so busy. And yet we continue to add space and add real estate, add machines, add people. But just keeping up with the demand is really difficult. And these tend to be a little bit longer cycle. But I think both Wencor and the HEICO businesses, if they could, they would really load significantly more business into our specialty products, but we just don’t have the capacity at the moment.
Operator: [Operator Instructions] We’ll take our next question from Jack Ayers with TD Cohen. Please go ahead.
Jack Ayers: This is Jack on for Gautam today. Eric, just going back to Wencor here. I think you talked about the margin profile, EBITA roughly similar to FSG? And I know, Larry, you kind of mentioned about net leverage at 3x and sort of quickly deleveraging kind of historical levels over time. I kind of just wanted to dig on that a little bit more because it seems pretty robust. And if we’re kind of looking at this correctly, I mean it does seem like quite an inflection in cash and EBITDA. So I just kind of wanted to dig on sort of the cash profile of Wencor, maybe working capital dynamics, things like that. Just any color.
Eric Mendelson: Yes. I think there Wencor’s cash profile is very similar to HEICO’s. They — as far as receivables and inventory, they have a very similar policy in terms of cash generation, I think it’s going to be very, very similar to HEICO. Of course, we are going to have the — as I mentioned in an earlier question, we will have the intangible amortization to contend with, but that’s a non-cash charge. I mean that doesn’t impact our cash. And as I mentioned, we even get a tax benefit for a chunk of it. So it helps cash. But it’s, I would say, very, very similar. We’ve been very fortunate to acquire almost like our brother from another mother. I mean it’s — the businesses are just very, very similar.
Operator: And our next question comes from Louis Raffetto with Wolfe Research. Please go ahead.
Louis Raffetto: Maybe just a follow-up on Jack’s question there. When you guys talked about the historical leverage within 12 to 18 months, I guess, what are we looking at? Like are we looking at the 2019 to 2022 where you were sort of 0 to 0.5 turn levered? Are you talking sort of further back where you’re one to two turns levered? Just trying to get a sense.
Carlos Macau: Louis, this is Carlos. When we talk about historical levels, we’re talking something below two. That’s how we think about it.
Louis Raffetto: Okay. Great. And then maybe, Carlos, just the corporate expense seemed to step up in the quarter. Was there anything else related to the deal or anything else just to be mindful of?
Carlos Macau: No, there was a lot — there was some intersegment activity, which was maybe on an apples-to-apples basis might have been $1 million higher. That’s not unusual timing. There were some step-ups in some costs, in particular, IT and professional services, travel, things like that. There were some increases there. But I would say that proportionally, with the growth in the business, it didn’t necessarily grow an outward pace. You know what I mean, it was pretty much consistent with the growth in the business.
Louis Raffetto: Okay. That’s great. And then, I mean, I guess, Larry, maybe one for you, just additional M&A from here. Obviously, you’ve done your two largest deals back to back now. I guess, how do we think about you absorbing Wencor and sort of moving on with your historical strategy from here?
Larry Mendelson: Well, I think we might have to take a little bit of a rest. We want to get, as we mentioned, get that debt down below three, and into the area of 2x EBITDA. However, I think there might be some bolt-on acquisitions. We’re looking at a number of transactions we don’t drop our M&A strategy just because of the two large acquisitions. And we are looking at them. And I think we will find ways to finance them at the same time, keeping the desire to get below 2x EBITDA. So, I think we can walk and chew gum at the same time. I think we can do it and we’ll work that out. We’ll work the financial arrangements out. As we are now were rated as a credit investment credit rating on our bonds. We want to keep that. We’re very proud of that.
