HEICO - Q1 2026
February 26, 2026
Transcript
Operator (participant)
Welcome to the HEICO Corporation First Quarter 2026 financial results call. My name is Samara, and I will be your operator for today's call. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties, and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements.
Factors that could cause such differences include, among others, the severity, magnitude, and duration of public health threats, our liquidity and the amount and timing of cash generation, lower commercial air travel, airline fleet changes, or airline purchasing decisions, which could cause lower demand for our goods and services, product specification costs and requirements, which could cause an increase in our cost to complete contracts, governmental and regulatory demands, export policies and restrictions, reductions in defense, space, or homeland security spending by U.S. and/or foreign customers, or competition from existing and new competitors, which could reduce our sales. Our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth, product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales.
Cybersecurity events or other disruptions of our information technology systems could adversely affect our business and our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals and achieve operating synergies from acquired businesses. Customer credit risk, interest, foreign currency exchange and income tax rates, and economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our costs and revenues. Parties listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including, but not limited to, filings on Form 10-K, Form 10-Q, and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by applicable law.
I now turn the call over to Eric Mendelson, HEICO's Co-chief Executive Officer.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you, Samara. Good morning to everyone on this call. Thank you for joining us. We welcome you to this HEICO first quarter fiscal 2026 earnings announcement teleconference. I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I am joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO, and Carlos Macau, our Executive Vice President and CFO. We received many nice comments about Victor's extemporaneous remarks as he opened our last conference call to discuss HEICO's 2025 fourth quarter results. We thought our listeners would appreciate a little insight into HEICO before we discuss HEICO's 2026 first quarter results. Obviously, HEICO's 2026 first quarter results reflect continued growth, and we are very proud of them, especially considering that only 36 years ago, HEICO had only $25 million in revenue, $2 million in earnings, and 200 team members.
Our dad, Victor, and I would often question ourselves: How was our 36 year, 23% compound annual growth rate and share price possible, especially when we were rarely leveraged at more than 2 times EBITDA? First, we have to thank God for these results. Second, we realized that Dad always had a saying, "Do the right thing," which was our mantra 24/7, 365 for the past 36 years. It wasn't just a saying, it was embedded in every single decision, every part sold or repaired, every company acquired, and simply everything we did. Obedience to the unenforceable became our DNA from the time Victor and I were small children to now, when we are 60 and 58 years old. Doing the right thing means making honorable choices when nobody's looking.
It means spending tens of millions of dollars on quality systems, not because our customers or regulators require them, but because we know it's a good investment that protects our brand. It means properly reserving for obsolete or excess inventory, not because our auditors require it, but because we know it's needed and mistakes must be learned from, recognized, and never repeated, not swept under the rug in order to protect reported earnings. These are just two of the many things that HEICO has done routinely over decades, and why we've never had a one-time unusual charge to earnings, whereby the economic earnings of the upcycle are largely erased following a black swan event, and investors don't realize much of the earnings never existed in the first place.
Considering our terrific results, we're even more proud of them, given the added cost that many people don't appreciate, but everyone benefits from in the long run.... HEICO was built for long-term and sustainable cash generation, which permits our earnings and cash flow to compound decade after decade, not just year after year. We are not into programs of the year, buzzwords, or comparing ourselves to others, hoping to get a higher multiple on our shares. We're designed for long-term, challenging, but sustainable earnings increases. I hope this provided a little insight into HEICO's secret sauce as you listen to our first quarter results. Before reviewing our operating results in detail, I want to take a moment to thank and recognize all of the people who made our excellent performance possible. HEICO's sustained growth and consistent profitability result directly from our team members' talent, dedication, and hard work.
Our team members drive our success and differentiate us from other companies. Thank you all for all of your continued commitment and for contributing to another strong, outstanding quarter. We are very proud of the first quarter results, which reflect consolidated margin expansion, record net income, and strong increases in operating income and net sales. We remain very bullish and optimistic about HEICO's ability to win new opportunities in fiscal 26 and continue our growth, profitability, and strong cash generation legacy. To summarize the highlights of our first quarter of fiscal 26 record results: consolidated net income increased 13% to a record $190.2 million, or $1.35 per diluted share in the first quarter of fiscal 26, up from $168 million or $1.20 per diluted share in the first quarter of fiscal 25.
Consolidated operating income and net sales in the first quarter of fiscal 2026 improved by 15% and 14%, respectively, as compared to the first quarter of fiscal 2025. Net income attributable to HEICO in the first quarter of fiscal 2026 and 2025 were both favorably impacted by a discrete income tax benefit from stock option exercises. The benefit in the first quarter of fiscal 2026, net of non-controlling interests, was $21.8 million, or $0.15 per diluted share, as compared to $26.5 million, or $0.19 per diluted share in the first quarter of fiscal 2025. That means we got a higher benefit from the discrete income tax benefit from stock options last year as compared to this year.
The Flight Support Group delivered strong results in operating income and net sales, achieving quarterly increases of 21% and 15%, respectively, as compared to the 1st quarter of fiscal 2025. The increases principally reflect strong organic growth of 12%, driven by increased demand across all of Flight Support Group's product lines, as well as the contributions from our fiscal 2025 acquisitions. The Electronic Technologies Group net sales improved 12% as compared to the 1st quarter of fiscal 2025. The increase principally reflects strong organic growth of 6%, driven by increased demand across most of our products, as well as contributions from our fiscal 2025 and 2026 acquisitions. Cash flow provided by operating activities was $178.6 million in the 1st quarter of fiscal 2026.
Operating cash flow for the quarter was negatively impacted by distributions of approximately $22.7 million to a long-term team member, over 40 years, and participant in the HEICO Leadership Compensation Plan, the LCP. The LCP is fully funded, and all sources of cash for these distributions are derived from investments in corporate-owned life insurance policies, which are considered investing cash inflows within our statement of cash flows. As a result, the LCP distributions are not an actual use of cash. We will have another large LCP distribution during the remainder of fiscal 2026 of approximately $73 million, which will negatively impact operating cash flows. Since the LCP, as I said, is fully funded, the distribution will continue to be net cash neutral to HEICO.
Consolidated EBITDA increased 14% to $312 million in the first quarter of fiscal 2026, up from $273.9 million in the first quarter of fiscal 2025. Our net debt-to-EBITDA ratio was 1.79 times as a result as of January 31, 2026, as compared to 1.6 times as of October 31, 2025. The increase in our leverage ratio is a direct result of the successful completion of an acquisition during the first quarter. Acquisition activity in both operating segments remains very strong, with a very healthy pipeline of opportunities. We continue to target complementary businesses that align strategically and financially, focusing on disciplined, accretive transactions that enhance HEICO's long-term value. In January 26, we paid our regular semiannual cash dividend of $0.12 per share. This represented our 95th consecutive semiannual cash dividend since 1979.
Now, I'd like to take a moment to discuss our recent acquisition activity. In January, our Electronic Technologies Group acquired 100% of Axillon Aerospace's fuel containment business, which was renamed Rockmart Fuel Containment. Rockmart designs and manufactures advanced fuel containment solutions, primarily for military, fixed, and rotary wing aircraft. The purchase price of this acquisition was paid in cash using proceeds from our revolving credit facility. We are very excited that Rockmart has joined the HEICO family, and we are very excited about their future contribution to HEICO's earnings. Earlier this month, the Flight Support Group acquired 100% of EthosEnergy Accessories and Components Limited. Ethos provides repair solutions for engine components and accessories for various industrial gas turbine, aeroderivative gas turbine, aerospace, and defense engine platforms.
I'm sure everyone on this call is keenly aware of the tremendous increase in demand for power caused by the exponential demand in AI, or artificial intelligence, and LLMs, or large language model adoption. This power is largely expected to be created through the use of industrial gas turbines and aeroderivative gas turbines. HEICO is obviously excited to enter this market and bring our technical capability and OEM relationships to serve this growing power demand. We believe HEICO's acquisition of Ethos provides us with the perfect platform to sell our high-quality repair solutions to satisfy these rapidly growing needs. The purchase price of this acquisition was paid with a combination of cash, using proceeds from our revolving credit facility and shares of HEICO Class A common stock.
This week, the Flight Support Group entered into an agreement to acquire 80% of the stock of a company that provides a range of services for commercial aviation and defense component platforms. Closing is subject to governmental approval and standard closing conditions and is expected to occur in the second quarter of fiscal 2026. The remaining 20% will continue to be owned by certain members of the seller's management team. We expect these acquisitions to be accretive to our earnings within the year following the acquisition. I now turn the call over to Victor Mendelson, HEICO's other Co-chairman and Co-CEO, to discuss the first quarter results of our Flight Support and Electronic Technologies Groups in further detail.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Eric, thank you very much. Before we get into the details, I echo what Eric mentioned at the outset of the call and thank our team members, the HEICO team members. The results we're discussing today are a direct reflection of their talent, their discipline, and commitment to execution. Their collaboration and focus on excellence in all they do and all we do is truly inspiring. The Flight Support Group's net sales increased 15% to $820 million in the first quarter of fiscal 2026, up from $713.2 million in the first quarter of fiscal 2025. The net sales increase in the first quarter of fiscal 2025 stems from strong organic growth of 12% and the impact from our fiscal 2025 acquisitions. The organic net sales growth reflects increased demand across all of our product lines.
The Flight Support Group's operating income increased 21% to $200.7 million in the first quarter of fiscal 2025, up from $166.1 million in the first quarter of fiscal 2025. The operating income increase in the first quarter of fiscal 2026 was principally driven by the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth, and an improved gross profit margin. That improved gross profit margin principally resulted from the previously mentioned higher net sales and a more favorable product mix within our repair and overhaul parts and services product lines. The Flight Support Group's operating margin improved to 24.5% in the first quarter, very impressive. In the first quarter of fiscal 2026, up from 23.3% in the first quarter of fiscal 2025.
The increased operating margin in the first quarter of fiscal 2026 principally reflects a decrease in SG&A expenses as a % of net sales, mainly reflecting the previously mentioned SG&A expense efficiencies and improved gross margin. Acquisition-related intangible amortization expense consumed 260 basis points, approximately 260 basis points of our operating income in the first quarter of fiscal 2026. The FSG's cash margin, before amortization or EBITDA, as we call it, was approximately 27.1%, which is excellent and has been consistently excellent, and is 110 basis points higher than the comparable FSG cash margin of 26% in the first quarter of 2025. Obviously, we are very, very happy with the continued operational excellence and improving cash generation demonstrated by the businesses in the FSG.
Now, turning to the first quarter results for the Electronic Technologies Group. The group's net sales increased 12% to $370.7 million in the first quarter of fiscal 2026, up from $330.3 million in the first quarter of fiscal 2025. The net sales increase was occasioned by strong 6% organic growth and the impact from our fiscal 2025 and 2026 acquisitions. The organic net sales growth is mainly attributable to increased sales of our aerospace and defense and other product, electronics products, partially offset by a decrease in space product sales. The Electronic Technologies Group's operating income was $73.2 million in the first quarter of fiscal 2026, as compared to $76.5 million in the first quarter of fiscal 2025.
That operating income decrease principally reflects a decrease in gross profit margin, partially offset by the previously mentioned net sales growth. The decrease in gross profit margin, and this is important, resulted from a less favorable product mix of defense products and the previously mentioned decrease in net sales of space products, partially offset by the previously mentioned increase in net sales of our aerospace products. As you know, quarterly margin variability in our ETG is consistent with the group's history, and there are periods in which shipments of lower, though not low, margin products are a greater proportion of our sales than in other quarters, which is predominantly based on shipment schedules. Based on our backlogs and our shipment plans, we expect the ETG margins to improve as the year progresses, particularly in the second half of the year.
Electronic Technologies Group's operating margin was 19.8% in the first quarter of fiscal 2025, as compared to 23.1% in the first quarter of fiscal 2025. Excuse me, 19.8% in the first quarter of fiscal 2026, as compared to 23.1% in the first quarter of fiscal 2025. The decreased operating margin principally reflects the previously mentioned lower gross profit. You may recall that we experienced similar unfavorable mixes from time to time, including the first quarter of fiscal 2024, and the rest of the year was quite healthy for us, and we're expecting the same kind of thing this year. Importantly, before acquisition-related intangibles amortization expense, our operating margin was approximately 24%, as intangibles amortization consumes over 410 basis points of our margin.
That is, as you know, how we judge our businesses, and it most closely correlates to cash. On a true operating basis, these are still excellent margins, even though we would not be satisfied with them on a full year basis. The ETG's strong margins resulted in another record backlog, demonstrating both strong demand for our products and robust end markets. Our shipments and shipment mix are typically uneven during the course of the year. We experienced some of that unevenness in our shipment mix this quarter, which was not a surprise, and is a pattern we've often discussed on these calls and elsewhere. We are pleased with the quarter's organic growth and are particularly excited about the opportunities in defense, commercial aerospace and space for the remainder of fiscal 2026.
I should add that this optimism is supported by the record backlog and increasing order volumes we've experienced. Thank you. I turn the call back over to Eric.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you, Victor. Our team is filled with optimism as we look at the remainder of fiscal 2026. We expect continued sales momentum in both Flight Support and the Electronic Technologies Group, supported by organic demand for our products, together with the impact of recent acquisitions. The current pro-business agenda in the United States continues to align well with our long-term goals, providing key markets like defense, space, and commercial aviation with a very strong tailwind in funding.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
We remain focused on pursuing selective acquisition opportunities that align with our growth strategy. Our disciplined focus to financial management continues to emphasize long-term shareholder value through a combination of strategic acquisitions and organic growth, while preserving financial strength and flexibility. Acquisition activity remains extremely robust across both business segments, supported by an outstanding pipeline of potential opportunities currently under evaluation. Our acquisitions teams are busier than ever working on these potential transactions, as one of HEICO's core strengths is identifying high quality businesses that complement and reinforce our strategic positioning. We believe HEICO is the preferred buyer for sellers seeking a great home for their businesses. Consistent with our long-standing acquisition philosophy, we will only pursue opportunities that meet our strict financial and strategic criteria, are accretive, and have the potential to generate durable, long-term value for our shareholders. We thank you for listening to this call.
Now, Samara, if you'd like to open up the floor for questions, we're happy to answer them. Thank you.
Operator (participant)
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Larry Solow with CJS Securities.
Larry Solow (Partner and Managing Director, Equity Analyst)
Great. Thanks. Good morning, everybody. I guess, first question for Victor. Just I think maybe the ETG putting a little pressure on the shares this morning. It sounds like, and I know you referenced Q1 2024, it sounds like the mix issue is completely temporary. It was a pretty significant sequential drop, but, you know, any more color on that, your backlog? I guess the mix doesn't sound like you have any, you know, trepidation and we could bounce right back to, you know, the low to mid-twenties range for the year. Is that fair to say?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah, I think that's absolutely right. That's our expectation. Based on the shipment schedules and what we have, that's what we're expecting. It isn't unusual for us to move around. It may be lower than the average, but, you know, sometimes we get the perfect storm of good shipment schedules, and sometimes we get the perfect storm of unfortunate shipment schedules. That's why, you know, we really guide people to look at the full year on the ETG, particularly as it, you know, as it moves on throughout the quarters. The, you know, the experience we had on this, was in, you know, multiple different products and subsidiaries, as I said, sort of the perfect storm, on the downside, if you will, on margins.
you know, very heavily mix related, extremely heavily mix related. Right now, what we have scheduled for shipments and what our subsidiaries are showing on the, as the year wears on is pretty exciting. Of course, we'll have to see. There are no guarantees, I always say, in life.
Larry Solow (Partner and Managing Director, Equity Analyst)
Absolutely.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
right now I'm, you know, I'm feeling good about what our companies are telling us. Feeling very good about what our companies are telling us.
Larry Solow (Partner and Managing Director, Equity Analyst)
Right. It feels like a great environment for a lot of your companies right now in the defense space, for sure.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah. I mean, if you look at our orders and you look at our backlog in the group, how it's been growing.
Larry Solow (Partner and Managing Director, Equity Analyst)
Mm-hmm.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
It's very exciting. You know, the mix of what's been growing is a nice mix, overall.
Larry Solow (Partner and Managing Director, Equity Analyst)
Right.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
you know, feeling good about it. Nothing's ever easy, but feeling good about it.
Larry Solow (Partner and Managing Director, Equity Analyst)
Yeah, sure. While I got you, Victor, a pretty nice size acquisition on the Axillon, I guess, you renamed Rockmart Fuel Containment. I think it's your third largest ever, you know, you know, in HEICO history. Any more color on this? Is this your usual sort of type, multiple and accretion we should expect over time?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
It's a very nice business. It is a, it's a supplier. It's done a lot of business with one of our other subsidiaries, Robertson Fuel Systems. They will be operating separately. There's a lot that they can do for each other, in terms of production, smoothing out production, as well as new designs and being pretty innovative for our customers. That will actually, you know, that is reporting to the Robertson business.
Larry Solow (Partner and Managing Director, Equity Analyst)
Mm-hmm
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
streamlined and easy. I think it's, you know, we expect that to be. It has been growing. We expect it to continue to grow. There's a big aftermarket, if you will, cycle to it, replacement cycle, that appears to be growing. We appear to be in the early innings of that. You know, we're pretty happy with it. You know, as we said, we expect it to be accretive to earnings in the first year of ownership. You know, it, we've only owned it for about a month. So far so good.
Larry Solow (Partner and Managing Director, Equity Analyst)
Right.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
I won't declare the.
Larry Solow (Partner and Managing Director, Equity Analyst)
Mm-hmm
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
victory or anything else, based on one month.
Larry Solow (Partner and Managing Director, Equity Analyst)
Sure.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Right now, feeling pretty good about it.
Larry Solow (Partner and Managing Director, Equity Analyst)
Great. If I could just put one quickie for Eric, just the organic growth, still very strong, at 12% and, you know, on a difficult comp. I'm just curious, you know, historically, you usually had seen some seasonal slowdown. We haven't in the last couple of years in terms of recovery and growth on the aerospace side. Just curious, you know, any thoughts on are we maybe just getting into a little more normal seasonality, where Q1 actually drops a little bit from Q4, which we haven't seen in a couple years, but we used to see if you go back? Thanks.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Hi, look, Larry, thank you very much for your question. I mean, you're absolutely correct. I mean, in general, if you look last year, Q1, was the lightest, organic growth, likewise in 2024, as well. You know, I'm particularly proud of these results given the high comps that we had in the prior years. You know, we had very high comps basically for the last four years, and to post 12% organic growth on top of them, I think is really outstanding. If you will, we didn't stuff the channel. There's a whole bunch of inventory that could have gone out, which didn't go out for various reasons, but we're very careful to make sure that we, you know, we do what the customers want. I'm very happy with these numbers.
I think they reflect very well on the group.
Larry Solow (Partner and Managing Director, Equity Analyst)
Great. Congrats. I appreciate that. Thank you.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thanks.
Operator (participant)
We'll take our next question from Peter Arment with Baird.
Peter Arment (Senior Research Analyst and Managing Director)
Hey, good morning, Eric, Victor Carlos. Nice results as usual.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Peter Arment (Senior Research Analyst and Managing Director)
Victor, maybe we could just drill in a little bit to try to understand the space kind of mix. I know in the past, it's been a nice margin contributor for ETG, but could you describe a little bit? I think you were a little more Geo-oriented versus, like, the LEO market. Is that still true, just given the overall mix and just how you see the overall kind of setup for HEICO, given all the demand for LEO market?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah, it's a very good question. Originally, the business was more heavily Geo, and over time, I would say now we're more heavily LEO. That, you know, in the businesses that were geo, originally, you know, shifting to LEO isn't cheap, right? Yet margins are less, there's a lot of different, you know, product design and R&D that goes into that. That I think we're getting through, if you will, so sort of the other side of that over the course of this year. You know, we still have a pretty good offering for geo, but we go where the customers are, and that's really the LEO market. We have some great businesses with very strong margins in LEO, too, by the way.
Actually, I think now, some really strong margins there. But that, as you may recall, too, has been a very uneven, very, very uneven business, I mean, from quarter to quarter. We like space, but we're not gonna be too much of a space company for that reason. you've probably noticed that. We've limited, we've been careful how we've grown in space, for that reason.
Peter Arment (Senior Research Analyst and Managing Director)
Got it. I appreciate the color there. Eric, just briefly, can you give me a little commentary there? A competitor bought a PMA business, and obviously, you guys still, I think are, you know, kind of the leader in PMAs. Is this a deal that had overlap with you, or how should we view that? Thanks.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thanks, Peter, for your question. Well, you know how the old saying goes, imitation is the highest form of flattery. For years, you know, when we started doing this, people thought we were crazy to be in the PMA business, and then they thought we were crazy to be in the repair business, in distribution, and all the things we did. Those people who were smart enough to invest in HEICO did extremely well. We think this is a sign that the PMA market is incredibly strong, and there are a tremendous number of PMA candidates out there. People have asked me, "What does this mean for HEICO's competitive positioning?" We feel very strongly about HEICO's competitive positioning.
You know, we've been running this company for 36 years, we've always focused on the customer and always focused on generating value for the customer. I would venture to guess we probably have the best customer relationships in the entire industry, I don't anticipate that to change. That's because we add value, we do what we say we're going to do, people know when they work with HEICO, they're getting a top-quality product. We still have a, you know, tremendous presence in that market. We are totally committed to it, I think it shows that others are recognizing the value of the PMA business.
Peter Arment (Senior Research Analyst and Managing Director)
Appreciate all the detail. Thanks, guys.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thanks.
Operator (participant)
We'll take our next question from Ken Herbert with RBC Capital Markets.
Ken Herbert (Managing Director and Senior Aerospace and Defense Analyst)
Yeah, hi. Good morning. Thank you.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Hey.
Ken Herbert (Managing Director and Senior Aerospace and Defense Analyst)
Hey, Eric.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thanks, Ken.
Ken Herbert (Managing Director and Senior Aerospace and Defense Analyst)
Yeah, Eric, maybe just wanted to follow up on your just comments there. I think there's a belief that PMA represents one of the real secular growing markets coming out of the pandemic, as the industry continues to face a lot of service challenges. Can you just maybe comment from an industry perspective, what kind of growth you're seeing in PMA and where maybe you see specific opportunities for HEICO, either in markets you typically haven't been in or maybe with customer sets or any other way you look at the market, to help us better frame how PMA is actually really doing broadly, and for you obviously, you know, here, as we continue to see the recovery?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah, Ken, I would be happy to answer that. First of all, I really recognize you, as you were one of the analysts who very early on figured out that what HEICO was doing in the PMA space was going to be very successful, both to the airlines as well as for our shareholders and team members. Those who followed your advice have profited handsomely. We are very committed and have never been more excited about the PMA business than we are today. You know, we've got roughly 20,000 different parts. It is a huge catalog and a huge competitive advantage because when we want to develop a new part. I mean, there's very little stuff in this world which is truly new to us. We've got this catalog.
We're able to go back and reference the drawings, the specifications, the vendors, the manufacturing processes, and the barrier to entry is tremendous in doing that. What we really need is greater acceptance at the airlines. You know, we've spoken about this for many years, why don't the airlines buy even more? Why don't they push us to buy even more? We're very happy with what we've done, why isn't it even more? I do think, to your point, that coming out of COVID, they recognized what we've said all along, that PMA isn't only about price, it's about turn time and making sure that you've got an alternate vendor and you have the part on the shelf. I have got tremendous respect for all of our competitors who supply parts to the industry.
It's a very hard thing to forecast the demand for a particular part. You never know what it's gonna be, and it depends on so many things, including the type of build that was done by either the airline or the repair station at the prior shop visit for the engine or the component. If times were good and they had plenty of money, and then they put a lot of new parts in, then when the component comes back, you're not gonna need a lot of parts. If times weren't good and they did the minimum, then you're gonna need a lot of parts. The problem is, for all of the vendors, it becomes extremely difficult to forecast in that situation.
What we've always said is that HEICO provides not only top quality, and outstanding value and cost savings, but we also provide availability. This is something that has become, you know, front and center, since COVID. We're happy about that. When you look at the you asked specifically the products that we're doing, our sales in the PMA business are roughly 3/4 non-engine, which would be components, airframe, interior, and about 25% engine. Our engine business is at a record level. We are doing extremely well. We are developing more engine parts. The airlines want us to develop more engine parts. I think you've written about the cost of engine overhaul, and the cost to overhaul some of these new engines is significantly higher than the cost to overhaul some of the existing engines.
We think that there's gonna be tremendous opportunity for us throughout the entire value chain. You know, I don't wanna pick on just engines, but on components as well. The newer components are extraordinarily expensive. I mean, they are off the charts nuts on the prices that they are charging. I think that HEICO is going to do extraordinarily well in our PMA and repair businesses, as we help airlines, you know, reduce their costs and keep them somewhat manageable and provide an alternate source of supply. I can't get into obvious, you know, specific product types or manufacturer types for competitive reasons. We'd rather just go do our thing and satisfy the airlines.
Ken Herbert (Managing Director and Senior Aerospace and Defense Analyst)
Yeah, appreciate all the color, Eric. Just to put a finer point on that.
Carlos Macau (Executive VP, CFO, and Treasurer)
Hey, Ken?
Ken Herbert (Managing Director and Senior Aerospace and Defense Analyst)
Yes.
Carlos Macau (Executive VP, CFO, and Treasurer)
You know, I might just add to what Eric just said, just to maybe put a few leaves on the tree, if you would. You know, our organic growth in our aftermarket business, which is our, you know, our parts and repair business, was up organically in the teens, and specialty products was in the high single digits. To echo what Eric said, I mean, our end markets in aerospace are very robust, and our guys are executing. I just thought you might find that nugget helpful.
Ken Herbert (Managing Director and Senior Aerospace and Defense Analyst)
No, I appreciate that, Carlos. Maybe just to put a finer point on it: historically, the argument was the lessors and maybe some of the emerging market airlines didn't use PMA much. Are you seeing any shift in customer types and adoptions? Thank you.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Yes, we are seeing shifts in customer types and adoptions. The airlines recognize they need this. you know, I'm aware of all sorts of activity and initiatives.... which I'd rather not call out on this call for competitive reasons, but we think that they are going to benefit HEICO tremendously. Great, thank you very much. Thank you.
Operator (participant)
We'll take our next question from Sheila Kahyaoglu with Jefferies.
Sheila Kahyaoglu (Managing Director, Equity Research)
Good morning, guys, thank you so much. Maybe my first question, I just wanted to clarify something. I joined later on the call. With Ethos, was it paid through Class A shares? You know, Eric, how do we think about those distributions happening? 'Cause I think you were mentioning it. Why was it Class A versus the common stock?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
I'd be happy to answer. Most of the consideration was cash. I think it was roughly, Carlos knows the exact percentage, but I think it was over 80% in cash, if I'm not mistaken. Carlos, is that correct?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
That's correct. It was a small quantity of A shares and, you know, they wanted to feel like owners. It was their request.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah. They... Yeah. Look, sometimes we do this because, you know, people are very happy to own the HEICO stock. The request was for A shares. That is why we granted the A shares. That was the concept there. We're very excited about that acquisition.
Sheila Kahyaoglu (Managing Director, Equity Research)
Okay, got it. It certainly seems like the right market to be in. Maybe, Victor, one for you. As we think about ETG profitability going forward, I know it ebbs and flows, is there any way you could bridge us on the margins in the quarter and, like, how to look forward?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
You know, I look, we continue to expect 22-24% GAAP margins in the business, which, you know, is 26-28% over the course of the year. You're gonna have quarters that are above and below that amount, which is, again, historically the case. I mean, there's nothing new to this. You know, I try to remind people this as often as possible, that there will be variability in the margins and the growth rate of the ETG. There's nothing that's changed. There's nothing that's fundamentally changed in the business.
Sheila Kahyaoglu (Managing Director, Equity Research)
Got it. Thank you.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you, Sheila.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
By the way, Sheila, just to expand on what I said about Ethos, you know, the sellers recognized that this market was really a tremendously growing market. For them to part with one of the foremost repair and overhaul shops focusing on industrial gas turbines and aeroderivative gas turbines, they really wanted to be compensated. They, you know, the request for HEICO Class A shares was in order to help reward them. We're very excited. Everybody's very knowledgeable about what's going on in the power generation space. Ethos has incredible capabilities in developing and executing on parts repairs, component repairs, and the access to that market. They've got three different facilities in Connecticut, South Carolina, and Aberdeen, Scotland.
They've got great access to the market, great people, great technology, and by putting it with HEICO, I think that it's going to provide HEICO with the ability to access what is, you know, as you know, a tremendously growing market. The A shares were just a component, if you will, a sweetener, because if they're gonna part with what we think is an incredible asset, they wanted, you know, something additional. We were able. You know, the other thing which is important, it's very easy to buy companies, but to buy companies at prices where it's accretive is using cash, is extremely difficult. We were able to get this deal done at a reasonable price, and the A shares were part of that enticement.
Sheila Kahyaoglu (Managing Director, Equity Research)
Understood. Thank you so much.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Operator (participant)
We'll take our next question from Scott Deuschle with Deutsche Bank.
Scott Deuschle (Director and Senior Equity Analyst)
Hey, good morning. Victor, there's some elevated inflation right now in certain parts of the microelectronic supply chain, particularly for memory. I was wondering if you could speak to what ETG is seeing there?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Okay.
Scott Deuschle (Director and Senior Equity Analyst)
If you expect to see any margin pressure there, either now or in the future?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you, Scott. It's a good question. We're definitely experiencing that elevated inflation rate in some of the components. We typically are able to pass those on to our customers. I think they accept that, they understand that. There is a lag effect, and that does take some time. You've got to work off the POs and, you know, items that are in the backlog. It is what I would consider a headwind, but more in the noise level and not particularly notable. By the way, varies business by business, but overall, on a consolidated basis, more in the noise level.
Scott Deuschle (Director and Senior Equity Analyst)
Okay. Are you generally able to get all the product that you need? Like, is the supply chain itself a limiter, or is it just a cost issue?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
I would say it's essentially normal, you know, what it's been, outside of that supply chain crunch, which is to say that there's always something. There's always a hot list item that's late, and kind of holding things up, somewhere in the system. You know, but for the most part, everything's running normal. It's kind of like airline schedules on a typical day. There's a certain number of delays, and that's kind of how it's running now.
Scott Deuschle (Director and Senior Equity Analyst)
Okay. For Eric, do you see any opportunity for AI to help accelerate any of the, maybe, reverse engineering analysis for PMA and the speed at which new products can be brought to market? Alternatively, do you think AI could help yourself or your airline customers better query parts catalogs and identify new, maybe previously unexplored, PMA opportunities? Just trying to better understand how HEICO can use AI to sustain or even accelerate growth. Thank you.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
That question has a lot of insight, and I think the answer is definitely with regard to both developing new parts, streamlining processes. I was just up at one of our subsidiaries last week, and they showed me there was a certain process in our quality acceptance area where we had multiple documents and multiple forms had to be filled out. They were able, through AI, to come up with a revised process, which is significantly more efficient than what we were doing before. We're already using it in the operations at HEICO. As far as the engineering, I think there is a lot of opportunity there, and it is as well being used over in the engineering process.
I agree with you, for customers to be able to figure out what they need to buy and, you know, look at the HEICO performance rate or quality rate or quality rating, how happy everybody is with us, I think that it will be a continued tailwind for HEICO. I mean, there's no reason why customers aren't buying more of our product line. I think AI will accelerate our growth.
Scott Deuschle (Director and Senior Equity Analyst)
Great. Thank you.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Operator (participant)
We'll take our next question from Ron Epstein with Bank of America.
Ron Epstein (Managing Director and Senior Aerospace and Defense Analyst)
Hey, good morning, guys. Hope you're doing well.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Good morning, Ron.
Ron Epstein (Managing Director and Senior Aerospace and Defense Analyst)
Hey, just as a follow on here, if you look at some of the evolving contract structures that are going on with some of the big defense primes, and in particular, the 7-year framework agreements, so far we've seen, you know, a handful with Lockheed, a bigger handful with RTX. What kind of impact do you expect that to have on you guys, if at all, where potentially you could get visibility on contracts out maybe 7 years? You know, how does that impact your business, and how are you thinking about it?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah, Ron, good question. We think it's a net positive. We have a number of companies that supply on a lot of those programs. It's something that gives us nice visibility into the future, helps us plan better, and, you know, on capacity, we've got really good capacity availability. It's usually a question of hiring people, and bringing more people in and figuring a way to do that, and different shifts. Overall, I think that's a net positive for us.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Also, just to add to that, in the Flight Support Group's specialty products division, we think that's gonna have a very good impact because we've got you know, we produce a lot of these different components, and having the advanced visibility into what's coming down the road is going to be extremely helpful. That's been a good tailwind for that business as well, with record backlogs for middle defense products.
Ron Epstein (Managing Director and Senior Aerospace and Defense Analyst)
Got it. Then, you know, we've talked about some you know, some supply chain stuff. I mean, have you had any impact from, you know, critical minerals or magnets or whatever else, and how you've been managing that in places where you do?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah, it's very minimal. It has not been a significant issue for us. So far, we do not expect that it will become one. You know, in fact, there could be opportunities for us as a result of that, and some of the new supply comes online in the U.S. vis-a-vis acquisitions and things of that nature, but that's further down the road.
Ron Epstein (Managing Director and Senior Aerospace and Defense Analyst)
Got it. Got it. Then maybe one more, if I can, to both of you guys. What are you seeing broadly in the acquisition market around valuation and so on and so forth? I mean, as you both know, no doubt, you know, the sector's gotten pretty hot and, you know, how's that impacting how you're looking at valuations and how you can do M&A going forward, where it is accretive in the framework or time that you guys like?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah. Ron, it's definitely pushed multiples up over a long period of time. It isn't anything new. Maybe a little bit more than historically. For us, certainly that's why we're working so hard to make sure that we do as well as we've done in the past. One of the important factors with us, I think, is the seller. Is the seller someone who's looking for something unique, particularly a good home for the business, someone who's gonna retain the legacy and the operations in a similar capacity as operated in the past? That gives us a really big advantage we've discovered historically. It doesn't mean we're gonna buy everything we want, but it means there's a very nice pipeline.
We have to count on a little more future growth, I think, and believe in the growth stories a little more than we used to. We're spending more time doing that, to ensure that we think we're gonna get the growth out of the businesses that that's estimated.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Also, just to add to that for a moment, Ron Epstein, as we mentioned, our acquisition teams are busier than ever. Their pipelines are full. I would expect additional acquisition activity this year. I think our shareholders, my guess is they're going to be very happy about what we're doing. The other key thing is that, you know, as Victor Mendelson said, by differentiating ourselves and providing the best home for the seller, that has tremendous value. You know, it's very easy to go out and pay high prices and win an acquisition. It's another thing to make it work financially. HEICO has very rigorous cash flow requirements, and we model each deal on its own, where it's got to support its own debt service, its own working capital needs, et cetera.
That's how we've been able to compound. You don't compound by going out and paying crazy prices for something. You compound by buying something that can stand on its own and is very reasonable. When you look at the, some of the prices of you know, switching topics for a moment, of some of what I believe are the defense tech businesses, I think they're extremely exaggerated. You know, we look for businesses that generate cash now and in the future, and paying extremely high multiples for something that really doesn't generate cash is just not what HEICO is about and not what we plan on doing.
Ron Epstein (Managing Director and Senior Aerospace and Defense Analyst)
Gotcha. Cool. Thank you.
Operator (participant)
We'll take our next question from Scott Mikus with Melius Research.
Scott Mikus (VP, Equity Research)
Morning, Eric and Victor.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Good morning.
Ron Epstein (Managing Director and Senior Aerospace and Defense Analyst)
Good morning.
Scott Mikus (VP, Equity Research)
I was curious, do you have a sense of how inventory levels are at your airline customers? 'Cause you mentioned that you didn't want to stuff inventory into the channel. I was also curious, within your distribution businesses, have there been any noticeable changes over the past several quarters in how fast they are moving inventory? Has the pace picked up as airlines prep for the summer travel season?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
I would say the inventory levels are very consistent to what we'd seen in the past. you know, there are certain parts which they can be overstocked on, other parts where they're under stocked on, but in general, there hasn't been a big change. As far as our distribution businesses, we've done extremely well. They are extremely busy, you know, supporting the demands of the aftermarket. I really sort of see it very much as business as usual. you know, not much of a change for HEICO there.
Scott Mikus (VP, Equity Research)
Okay. Then thinking back one year ago, a lot of us were asking about DOGE and how that could benefit your business. We're now one year into the current administration. Have you started to see the Pentagon get the ball rolling on acquiring more alternative parts to both reduce maintenance costs and improve readiness rates for military aircraft? Are they at least doing it on the derivatives, like the P-8 and KC-46?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
We've seen some movement there, yes. We always said that this would be a medium term project. It's very hard to get things fully moving at the speed that we would like, but we are seeing good progress there, and we do anticipate further progress to come. We feel very good. You know, you look at the president's defense budget, something's got to be a bill payer for these, you know, tremendous increases. This is very logical, I think what the Secretary of War is doing makes a lot of sense, they just can't keep on paying these high prices. I'm still very optimistic in that regard.
Scott Mikus (VP, Equity Research)
You got it. Thank you.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Operator (participant)
We'll take our next question from John Godyn with Citi.
Jon Godyn (Analyst, Aerospace Defense and Airlines)
Hey, thanks a lot for squeezing me in here. Eric, I wanted to follow up on the energy business and Ethos and what you're doing there. You offered a number of data points and breadcrumbs. We see different companies across A&D attacking this in different ways. I just wanted to talk about it big picture, but the types of questions on my mind are, did you kind of go down this path based on reverse inquiries from customers? What types of components do you expect to supply? Is it based on your existing SKUs, or do you think that you're going to develop new SKUs? There are so many questions here, I can't go through all of them, but I just wanted to give you a chance to kind of talk through this a bit more.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Sure. Thank you. I think that's a great area, which frankly hasn't been focused on by a lot of people. We thought that this would be a great market. If you look, we've been working on Ethos now for approximately a year, so we started that project a year ago. We saw what was going on in the industrial gas turbine space, and to a lesser extent, the aero derivative, and we thought that this would be a very strong area. We went out very aggressively, to work with the seller and come up with a deal that made sense. I think we also developed a very good relationship with the operating folks at the businesses, and we were definitely the preferred buyer.
You know, as far as the aeroderivative connection, I mean, that makes a lot of sense. Everybody's very familiar with what HEICO does, and really what we can bring to some of the aeroderivative parts should customers want that as well on the industrial gas turbine parts. Both on the IGT and the aeroderivative, Ethos has very strong OEM relationships, and they have They're approved by various OEMs to support those products, and they've been doing so for a very long time. We are going to continue to support those channels and not offer an alternative if there is an OEM relationship there. Where there aren't OEM relationships, we'll try to form them with different companies.
If not, we think that there's very good opportunity to continue penetrating the markets there. There's just a huge demand. I mean, you see what's going on with all the power companies, and Ethos has an extremely wide array of products that it services. It does blades, vanes, all sorts of, you know, various static parts, rotating parts, components, and we think that their technology lines up perfectly with ours, and we are super excited to have made this acquisition, and we think that it's going to be extremely successful and a great entree for HEICO. If HEICO were to try to enter the industrial gas turbine or the aeroderivative market on its own, it would be extremely difficult.
We didn't, you know, have much of a relationship with those customers. Here, Ethos has been an incredible supplier for decades with these companies. Actually, Ethos, the genesis of it, is it used to be the Wood Group Aero Accessories and Components Group. They have, you know, decades of working with the energy companies and the turbine suppliers, so we think we've got a great platform to leverage and move forward.
Jon Godyn (Analyst, Aerospace Defense and Airlines)
This is such a big market, this is a very big picture question, but do you see this as something that could become so large for HEICO over, you know, in the fullness of time, you know, that, as symbolically, we might even have an IGT segment, a third segment, for the first time or something like that? Could it be that big?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Well, that would be very aspirational. I don't wanna get over my skis here and promise that, but we do have very high expectations for the business. It really I would say it's in early innings right now. The company's got great capability, great people, three locations, and, you know, I hope what you're saying is correct, and I'm sure that our team members at Ethos and at Wencor are listening to this call, and they are inspired by your question and outlook for it.
Jon Godyn (Analyst, Aerospace Defense and Airlines)
Appreciate it. Thanks, guys.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Operator (participant)
We'll take our next question from Matt Akers with BNP Paribas.
Matt Akers (Senior Analyst, U.S. Aerospace and Defense and Government Services)
Yeah. Hey, good morning, guys. thanks for fitting me in. most of mine have been asked already, but I wanted to just touch on the balance sheet and just how you feel, you know, 1.8x leverage obviously has come down quite a bit since Wencor, just I think historically you've been a little bit lower. just how, kind of, are you thinking about the balance sheet here?
Carlos Macau (Executive VP, CFO, and Treasurer)
I'm happy to take that question. You know, our leverage right now is under two times, so I'm very comfortable at this leverage point. You know, I expect that what we've done in the past will continue into the future. You know, we'll continue to use a line of credit as a primary vehicle for funding acquisitions, which then affords us the opportunity to quickly pay that down and reload for the next deals. You know, we'll still use that type of a structure. Right now, our permanent debt or the bonds that we have, are running less than one turn of EBITDA, so I think our capital structure is quite flexible, and we're not capital constrained. You know, from a balance sheet perspective, we could go higher on leverage.
I think if we did that, it would be very opportunistic, and there'd have to be a pathway to generate significant cash to bring us back down in the, you know, the 2 times, 2.5 times leverage ratio. I mean, I would think that that's something that's doable for us. I don't think HEICO's gonna be a 7 times leveraged business. That's not in the cards for us. But I'm not gonna rule out for an incredibly good acquisition. If we went to that level and had a pathway to get back down into the 2s over a reasonable period of time, we would certainly consider that and execute on it, if it was good for our shareholders.
Matt Akers (Senior Analyst, U.S. Aerospace and Defense and Government Services)
Yeah, thank you. That's, that's really helpful. Yeah, no, yeah, thanks, Carlos. Then I guess just one on ETG. I mean, I guess, was the government shutdown at all related to any of the mixed impact that you guys discussed in the quarter, or that, is that not the driver?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
that wasn't the driver. It did have some impact, a little bit, stuff shifting out, and so, you know, we'll pick up the benefit of that, you know, later on in the year, but I wouldn't call it a material impact.
Jonathan Siegmann (Managing Director, Equity Research)
Okay. Thank you very much. I'll leave it there.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Carlos Macau (Executive VP, CFO, and Treasurer)
Thanks.
Operator (participant)
We'll take our next question from Gavin Parsons with UBS.
Max Miller (Equity Research Associate, Aerospace and Defense)
Good morning. You have, Max Miller on for Gavin.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Good morning. Good morning, Max.
Max Miller (Equity Research Associate, Aerospace and Defense)
How's it going? It's pretty clear that a lot of the tightness in the aftermarket and some of the OEM pricing, you're seeing actually increases the value proposition of a HEICO alternative. If we, you know, hypothetically flip that script, what are the implications for HEICO in a world where maybe, you know, some new aircraft come online, some of the older platforms come out of the fleet, and, you know, aftermarket or at least the fleet age begins to normalize a little bit? Does that change the math for PMA utilization and where you see HEICO thriving?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
We don't think so. I mean, our business is always impacted by, you know, first and foremost, the growth in fleet hours or available seat miles. You know, the subcomponents of that are you look at the age of the aircraft. I mean, you've got this 20-something thousand aircraft fleet, which is aging one year per year. The OEMs do a really good job of making sure that they escalate prices very aggressively to make up for any of that, you know, to take advantage of that. When you look at the fleet retirement, you know, that typically hasn't been a big part of big part of the equation, but it is something that we continue to look at.
I think there's a very big opportunity for all of these new aircraft that have been delivered, roughly over the last ten years. The price of the spares on those aircraft is significantly higher than on the spares on the aircraft that they replace. If you look at line for line, you know, the same line replace LRU on an older aircraft versus a newer aircraft, the newer ones are significantly more expensive. All of this is to say, I think I agree with you. I think our value proposition increases substantially. I think that we're going to be in a very good place. We're already taking advantage of the opportunity in a lot of these markets, I think that will continue.
Max Miller (Equity Research Associate, Aerospace and Defense)
Great. Thank you. I'll leave it alone.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Operator (participant)
We'll take our next question from Michael Ciarmoli with Truist.
Michael Ciarmoli (Senior Research Analyst, Aerospace and Defense)
Hey, morning, guys. Thanks for getting me on here and sticking around.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Good morning.
Michael Ciarmoli (Senior Research Analyst, Aerospace and Defense)
Maybe quickly, Eric, just to go back to John's energy line of questioning, I don't know if this is a quick one or a conversation for a bigger conversation for another time, but the CFM56 and its potential use in the power generation market. You've obviously got a lot of content on some of those legacy platforms. Should we expect that, assuming it gains traction in the energy marketplace, can that be a significant tailwind in terms of those platforms, generating, you know, a materially more amount of parts? You know, thinking that they've got life after or additional life, you know, besides kind of in the traditional aircraft market?
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Yes, I think definitely. When you look at the aeroderivative market, you know, tremendous life in repurposing those engines. There are many companies doing that, whether it's on some of the old CF6s or the CFM56s, the use of the HEICO parts in those repairs and overhauls is, I expect, going to be substantial. I think that there's a very good tailwind for us there.
Michael Ciarmoli (Senior Research Analyst, Aerospace and Defense)
Okay. Okay. I'll keep it at that, since we're running long anyway. Thanks, guys.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you. Thanks, Mike.
Operator (participant)
We'll take our next question from Jonathan Siegmann with Stifel.
Jonathan Siegmann (Managing Director, Equity Research)
Good morning. Thanks for fitting me in, and congratulations on the quarter.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Jonathan Siegmann (Managing Director, Equity Research)
Real quick.
Eric Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you.
Jonathan Siegmann (Managing Director, Equity Research)
Just one for Carlos. Just looking back at space organic growth of ETG, in the Q last year, it was exceptional, $13.5 million year-over-year. You're gonna give us how much it was down this quarter. Can you, and this Q, can you preview what that decline is?
Carlos Macau (Executive VP, CFO, and Treasurer)
The decline was. Yeah, I can give you some color on that. The decline in space organically was in the high single digits for the quarter, compared to Q1 of 2025. As Victor mentioned earlier, Jonathan, it's not a result of order volume kicking down or backlog not being there, it's really just a function of shipments. Always is with space. I wouldn't read too much into that, to be candid with you. I think you'll see some of that recover in the subsequent quarters as we catch those shipments going forward. Is that helpful?
Jonathan Siegmann (Managing Director, Equity Research)
I think that shows it has to do with that great strong comp last year. The other question I've heard folks ask us is, you have exceptional positioning with the space and defense hardware providers.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Mm-hmm.
Jonathan Siegmann (Managing Director, Equity Research)
How is your penetration with new customers in this area? Are you guys able to maintain a position with these new people in space and defense? Thank you, guys.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you, John. That's a good question. The answer to that is yes. We've picked up a number of, you know, new space and defense tech customers along the way, and so far, we're holding on to them. The way we generally look at it is that we are going to supply the customer base. They need our parts, our products, regardless of who they are, and for the most part, that seems to be holding true. Thanks for the question.
Jonathan Siegmann (Managing Director, Equity Research)
Thank you.
Operator (participant)
We'll take our next question from Tony Bancroft with Gabelli Funds.
Tony Bancroft (Portfolio Manager and Research Analyst)
Hi. Good morning, gentlemen. great job. you know, my, obviously, is revolving around the defense budget. You saw, you know, you saw the proposed potentially a $1.5 trillion budget. you know, even if that doesn't, even if that doesn't, you know, come to fruition over a number of years, it's still a, that's a big number, just, you know, just directionally. How do you see that impacting your business? Maybe just broad strokes on that, and then obviously all the announcements earlier this year from the Department of War, on the program, you know, Dome Dominance, Arsenal Freedom, you name it.
You know, how, what have you been told that you've spoken to the Department of War and just maybe your overall view on those dynamics?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Well, first, Tony, thank you very much, for joining us and for your comments. We very much appreciate them. In terms of the outlook for us, the impact on us, first question that you asked, the impact on us of the increased defense budgets and some of these orders, that definitely is beneficial. I mean, obviously, the devil will be in the details, ultimately, where that falls over the years. From what we've seen and heard, and we talked a little bit earlier about some of these multi-year buys that the government is doing, on programs. We're on both sides of the business. This applies to both the Electronic Technologies and Flight Support Groups.
There's definitely an impact and a benefit, and maybe we're even seeing some of that in our backlogs now, and that's a good thing. In terms of the Golden Dome possibilities, you know, it's not that completely defined publicly, but from what we know and what we see, it consists of a lot of existing programs, particularly obviously missile defense programs. Again, we're on both, on both sides of the business, you know, Flight Support and Electronic Technologies. We're on a lot of those programs, and there appear to be some newer, tracking and reconnaissance parts of that system. We are, you know, from what we're told, some of the things we're selling on, I can't go on, obviously, specifics, but we're told that they are for Golden Dome.
You know, there's no Golden Dome department. You don't get a letterhead that says Golden Dome, this is officially Golden Dome. There was this list of companies they put out as primary vendors, but remember, we're down a layer in the supplier base. Of course, as I'd answered earlier, I mentioned, you know, the defense tech guys are participating there, it appears, in a variety of ways, and we're picking that up as well. Overall, both are positives for us, and we feel good about them on, again, both sides of the business.
Tony Bancroft (Portfolio Manager and Research Analyst)
Thanks so much. Great job.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you very much.
Operator (participant)
We'll take our next question from Louis Raffetto with Wolfe Research.
Louis Raffetto (SVP, Equity Research)
Hey, good morning, guys.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Good morning, Louis.
Louis Raffetto (SVP, Equity Research)
Maybe one for Carlos. Just, the stock comp expense was pretty high in the quarter, I know it was sort of called out in the press release as well. Just curious, does that level continue throughout the year, or does it step down, or does it ramp up?
Carlos Macau (Executive VP, CFO, and Treasurer)
It's a good question, Louis. If you recall, you may remember last year, we talked a little bit about the performance feature that were attached to our options in 25. You know, normally our options historically have always just been time-based, at best over five years. Now, we added a performance feature last year for growth in the business, what winds up happening is the amortization of that expense actually accelerates as a result of that. It's a part of the accounting rules that drive us crazy sometimes, nonetheless. What'll happen is we'll probably catch a little bit more of that elevated expense the front half of this year, then it'll taper off towards the end of the year.
In fact, as we get into the following fiscal year, it should taper down, probably on par or lower than what it had been historically, because we would have amortized a lot of those 25 grants in fiscal 2026. Does that make sense?
Louis Raffetto (SVP, Equity Research)
I appreciate it, Carlos. Yeah, I know how much you love all the accounting on that.
Carlos Macau (Executive VP, CFO, and Treasurer)
Yeah, right.
Louis Raffetto (SVP, Equity Research)
Maybe one for Victor and Eric. Just kind of, again, big picture here. Obviously, you guys have grown a ton over your 36 years. You're kind of in the $5 billion neighborhood. Just how do you guys think about the scale of the business, the sheer number of underlying, you know, businesses that are operating? At some point, you know, do you see some other potential portfolio action as making sense?
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Yeah, listen, we've been able to adjust and grow with the business and morph, if you will, the organization as we've gone. There was a point in time where everything reported either to Eric or to me, this is Victor speaking, reported to one of us, and over time, we've gone to more of a bit of a working supervisor model, if you will. Really extraordinary and talented people who show an ability to handle multiple companies at one time, and acquisitions as well, multi-site situations, for example, and they are leading groups. We've been breaking this down into groups on both sides of the business, and that's gonna continue. The acquisition, you probably noticed, the acquisitions we've made have generally been into those groups or into or under reporting to another subsidiary.
We wanna keep that talent doing it that way, and we think that's very scalable.
Louis Raffetto (SVP, Equity Research)
Great. Appreciate that, Victor.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you very much.
Operator (participant)
At this time, I will turn the conference back to the management team for any additional or closing remarks.
Victor Mendelson (Co-Chairman of the Board and Co-CEO)
Thank you very much, everyone, for participating in our call, and for those who asked questions. We are always available. That's Eric, Victor, or Carlos, for any of your additional questions that you may want to ask offline. We look forward to speaking with you again on our second quarter fiscal 26 conference call at the end of May. Thank you very much, and this concludes our call.
Operator (participant)
Thank you, this does conclude today's call. Thank you for your participation. You may now disconnect.