Louie DiPalma: Larry, Eric, Victor and Carlos, good morning.
Laurans Mendelson: Good morning Louie.
Louie DiPalma: When discussing the Wencore deal, Wencor’s e-commerce platform was touted as one of the unique assets with potential synergies. Has HEICO started the process of selling any of the HEICO parts on the Wencor online marketplace? And are there many revenue and cost synergy projects planned for 2024, or is that more of a 2025 event? Thanks.
Eric Mendelson: Yes. This is Eric. I would be happy Louie, to answer that. As I mentioned, the HEICO philosophy when we acquire a business is just to leave it alone and observe what’s going on. We have got our initial view, and then we want to make sure we confirm that first before making substantial changes. So yes, the ownership period of Wencor has gone extremely well. And we are working on a number of projects in terms of product rationalization, sharing resources between the businesses, sending business to HEICO-Wencor, which used to go outside. So, all of that is going well. Specifically with regard to the e-commerce platform, we think that that’s going to be an opportunity for 2024. It’s something that we are looking at right now.
We continue to believe very much that’s going to be a huge asset. They are studying the best way to go ahead and do that. But no, we have not done it to-date, not because we don’t want to do it, but because frankly, both businesses are running at such a high percentage of utilization that we don’t have people to be able to focus on all of the projects that we are just sort of taking them as we can handle them. But we believe that that’s going to be a tremendous benefit for us in 2024.
Louie DiPalma: Great. And a follow-up on that, in terms of the cost synergies, then you said that you plan to let Wencor operate in a standalone mode. Should we think of synergies more as a 2025 event then? Like how long would you generally plan to let it operate in a standalone mode?
Eric Mendelson: Well, I think the revenue synergies are going to start accruing quickly. And then as far as some of the cost synergies, the business units are taking it upon themselves to work together and to find areas where they can rationalize product lines. If one business does more of a particular product than another, they are looking at swapping. So this way, we can maintain the workforces. We have got tremendous volumes and all the businesses are running at a high utilization factor. So, but if we can redirect people to more efficient activities, we want to do that. So, we are taking advantage of the revenue synergies and of some of the cost synergies, but I would say that that’s going to be something that benefits us in both ‘24 and ‘25.
Louie DiPalma: Excellent. Thanks Eric and thanks everyone.
Eric Mendelson: Thank you.
Operator: And we will take our next question from Larry Solow with CJS Securities. Please go ahead.
Larry Solow: Great. Thanks. Good morning guys. Happy holidays to everybody. Most of my questions have been answered. Just one, I guess on – just on free cash flow, a couple there. Sort of you are – without getting specific guidance sort of your general outlook on free cash flow in terms of working capital needs, do you expect maybe have to build a little more inventory? How do you think that’s going to shake out? And then part to that question would be kind of priorities for free cash flow. A little more leverage than you guys are used to. So, I am just curious, would that number one priority be sort of debt pay down, maybe in front of even strategic acquisitions? Thanks.
Carlos Macau: So, let me take a stab at that, Larry. It’s Carlos. I think that on the – as you mentioned, the inventories side, we did have a significant investment in ‘23 in inventory. And I suspect that for a few quarters into ‘24, we might have a little bit more inventory build. Part of that is due to firm commitment orders we place, sometimes as much as 2 years ago, to deal with the supply chain challenges to make sure we had product on the shelf for our customers. But I do think that carrying costs and inventory isn’t free anymore, right. Rates are up, so we are very cognizant of that. And I do think as we get into ‘24, my hope is, is that towards the back half of the year, we get a little bit more rationalization on the working capital usage.
That’s my expectation. As far as free cash flow, I expect the company to continue to have strong free cash flows. And I do think you have hit the nail on the head. Once the working capital investment to support the growth and some of these firm commitment orders has tempered, I think our conversion will be slightly [Technical Difficulty]. Does that answer your question, Larry?
Larry Solow: Yes. Absolutely. And I guess just priority. Debt pay down, is that probably the priority or…?
Carlos Macau: Yes. Look, I mean our objective right now as we stated before, is to try and de-lever as quick as possible. Our plan after completing the Wencor acquisition within 12 months to 18 months, we set out on a plan to get our debt leverage ratio, something close to normal, around the 2% range, roughly. That’s the goal of the 12 months to 18 months, I would say that, that is not a goal that prohibits us from doing acquisitions. I would say that for smaller acquisitions we will draw on our line to do what we need to do to complete those if they are good for our shareholders. I think if they are larger deals, we might have to get creative, but I don’t expect that over the next 12 months to 18 months, something as large as Wencor probably would be very unique. I don’t know that we have got something on the horizon right now. And I do think, to your point, that deleveraging is sort of our highest and best use of free cash right now.
Larry Solow: Excellent. Okay. Great. Thanks guys. I appreciate it.
Carlos Macau: Yes.
Operator: And we will take our next question from Ron Epstein with Bank of America. Please go ahead.
Mariana Perez Mora: Good morning everyone. This is Mariana Perez Mora on for Ron today. I am going to ask a big picture question. Larry, in your prepared remarks you highlighted, you have never been more optimistic about HEICO’s future than you are today. When you think about the year ahead, what are you most excited about, if the industry is a particular end market, it’s HEICO competitive position?
Laurans Mendelson: I think all of the above and other areas, too. I think that the Wencor acquisition puts us in a very unique spot. As we have told you today, it’s actually working out better than we anticipated. To HEICO, the culture of a company is critical. And I can tell you, as a large acquisition like Wencor, having that excellent culture is really a wonderful thing. We have learned – I am a financial person, originally started as a CPA long ago, and finance is very important. And we key on that, of course, in cash. But when I look at our cash flow and I look at our culture, the culture is what ultimately drives the bottom line. So, this is very, very good. On the other hand, the Exxelia acquisition has come off almost exactly what we expected.
