Good morning. My name is Felicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the HEICO Corporation fiscal year 2019 first quarter earnings results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please note that today's call is being recorded. 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 as a result of factors including lower demands for commercial air travel or airline fleet changes or airline purchasing decisions, which could cause lower demands for our goods and services, product specification costs and requirements, which has caused an increase to 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 cause reduced our sales or 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 developmental cost and delay sales, our ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest, foreign currency exchange and income tax rates, economic conditions within and outside of the aviation, defense, space, medical, telecommunications, and electronics industries, which could negatively impact our cost and revenues, and defense spending or budget cuts, which could reduce our defense-related revenue.
Parties listening to or reading a transcript of 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. Thank you, and I'll turn the call over to Laurans A. Mendelson. You may begin.
Thank you very much, good morning to everyone on the call. We thank you for joining us, we welcome you to this HEICO first quarter fiscal 2019 earnings announcement telecom. I'm Larry Mendelson, Chairman and CEO of HEICO Corporation, I'm joined here this morning by Eric Mendelson, HEICO's Co-President and President of HEICO's Flight Support Group, Victor Mendelson, HEICO's Co-President and President of HEICO's Electronic Technologies Group, and Carlos Macau, our Executive Vice President and CFO. Before reviewing our operating results in detail, I'd like to take a moment to thank all of HEICO's talented team members who again were responsible for our excellent results. I'm truly proud of this dedicated, loyal group, they continue to produce the highest quality products and services for our customers while maintaining our unique entrepreneurial culture and delivering outstanding returns to our shareholders.
I now take a few minutes to summarize the highlights of our first quarter results. Consolidated net income increased 22% to a record $79.3 million, or $0.58 per diluted share in the first quarter of fiscal 2019. That was up from $65.2 million or $0.48 per diluted share in the first quarter of fiscal 2018. Consolidated operating income increased 23% to $97.9 million in the first quarter of fiscal 2019. That was up from $79.6 million in the first quarter of fiscal 2018. Our consolidated operating margin improved to 21% in the first quarter of fiscal 2019. Again, that was up from 19.7% in the first quarter of fiscal 2018. Our consolidated net sales increased 15% to $466.1 million in the first quarter of fiscal 2019. That was up from $404.4 in the first quarter of fiscal 2018.
Our ETG Group net sales and operating income in the first quarter of fiscal 2019 are up 18% and 19%, respectively, over the first quarter of fiscal 2018. Those increases principally reflect 12% organic growth, as well as the impact of our profitable fiscal 2019 and 2018 acquisitions. Flight Support net sales and operating income in the first quarter of fiscal 2019 are up 13% and 15%, respectively, over the first quarter of fiscal 2018. The increases principally reflect 13% organic growth. Total debt to shareholders' equity was 38% as of January 31, 2019. That compared to 35.4% as of October 31, 2018. Our net debt, which is total debt less cash and cash equivalents, was $550.7 million as of January 31, 2019. To shareholders' equity ratio was 34.4% as of January 31, 2019. That compared to 31.5% as of October 31, 2018.
Our net debt to EBITDA ratio was 1.17 times as of January 31, 2019. That compared to 1.04 times as of October 31, 2018. We have no significant debt maturities until fiscal 2023. We plan to utilize our financial flexibility to aggressively pursue high-quality acquisitions, which will accelerate growth and maximize shareholder returns. In January 2019, we paid an increased regular semiannual cash dividend of $0.07 per share. This represented our 81st consecutive semiannual cash dividend and a 17% increase over the prior semiannual per share amount. It represented a cumulative increase of 25% since January 2018. In November 2018, we acquired both Specialty Silicone Products and Apex Microtechnology. Both acquisitions have been successfully integrated into our ETG Group. In February 2019, we acquired 85% of Solid Sealing Technology, Inc., which we sometimes refer to as SST.
They design and manufacture high-reliability ceramic to metal feed-throughs and connectors for demanding environments within the defense, industrial, life science, medical, research, semiconductor, and other markets. SST is part of our ETG Group. We expect the acquisition to be accretive to our earnings within the first 12 months following the closing. Last week, the Israeli nonprofit company, SpaceIL, in cooperation with NASA, launched the Beresheet moon lander. That lander is an exploratory robotic spacecraft, which is scheduled to land on the lunar surface in April 2019. Several HEICO subsidiaries supplied mission-critical parts on the lander and the launch vehicle. We congratulate the entire SpaceIL and NASA teams. Could not be more proud of our subsidiaries that helped make that mission possible. Again, we point that out to try to explain to shareholders the extent of our technical reach and capabilities as a high-tech company.
The Japan Aerospace Exploration Agency, JAXA, recently landed the Hayabusa2 space probe on the Ryugu asteroid. The spacecraft is collecting physical material from the asteroid and will return the material samples to Earth in 2020. HEICO subsidiaries provided mission-critical components on this space probe, which has been exploring space since 2014. We are very pleased and proud of the quality of the components produced by the HEICO subsidiaries for JAXA, which has helped the Hayabusa2 space probe thrive in space for the past five years. I would like to introduce Eric Mendelson, Co-President of HEICO and President of HEICO's Flight Support Group, and he will discuss the results of the Flight Support Group.
Thank you. The Flight Support Group net sales increased 13% to $287.2 million in the first quarter of FY 2019, up from $254.7 million in the first quarter of FY 2018. This increase reflects our outstanding organic growth of 13%. The Flight Support Group's organic growth is mainly attributable to increased demand in new product offerings within our aftermarket replacement parts and specialty products product lines. The Flight Support Group's operating income increased 15% to $52.9 million in the first quarter of FY 2019, up from $45.9 million in the first quarter of FY 2018. The increase reflects the previously mentioned organic net sales growth of 13%, as well as an improved gross profit margin, mainly attributable to a more favorable product mix within our specialty products product line.
The Flight Support Group's operating margin increased to 18.4% in the first quarter of FY 2019, up from 18.0% in the first quarter of FY 2018. The increase principally reflects the previously mentioned improved gross profit margin.
With respect to the remainder of FY 2019, we now estimate full-year net sales growth of approximately 7%-9% over the prior year, up from the prior estimate of 7%-8%, and the full-year Flight Support Group operating margin to approximate 19.0%. These estimates exclude acquired businesses, if any. I would like to introduce Victor Mendelson, Co-President of HEICO and President of HEICO's Electronic Technologies Group, to discuss the results of the Electronic Technologies Group.
Thank you, Eric. The Electronic Technologies Group's net sales increased 18% to $184.4 million in the first quarter of fiscal 2019, up from $155.7 million in the first quarter of fiscal 2018. The increase reflects organic growth of 12% and the impact from our profitable fiscal 2019 and 2018 acquisitions. The organic growth is mainly attributable to increased demand for certain defense, aerospace, and space products. The Electronic Technologies Group's operating income increased 19% to $51.6 million in the first quarter of fiscal 2019, up from $43.2 million in the first quarter of fiscal 2018. The increase principally reflects the previously mentioned net sales growth. The Electronic Technologies Group's operating margin improved to 28% in the first quarter of fiscal 2019, up from 27.8% in the first quarter of fiscal 2018.
With respect to the remainder of fiscal 2019, we now estimate full-year net sales growth of approximately 11%-13% over the prior year, up from the previous estimate of 10%-11%. We continue to anticipate the full-year Electronic Technologies Group's operating margin to approximate 28%-29%. We also now estimate the Electronic Technologies Group's organic net sales growth rate to be in the mid-single digits. These estimates, of course, exclude additional acquired businesses, if any. I turn the call back over to Laurans Mendelson.
Thank you, Victor. Moving on to earnings per share. Our consolidated net income per diluted share increased 21% to $0.58 in the first quarter of fiscal 2019, and that was up from $0.48 in the first quarter of fiscal 2018. The increase in diluted earnings per share reflects strong operating performance of both Flight Support and ETG. Fiscal 2018 diluted earnings per share amounts have been adjusted retrospectively for our five-for-four stock split distributed in June 2018. Depreciation and amortization expense totaled $20 million in the first quarter of fiscal 2019, and that was up from $19 million first quarter of fiscal 2018. The increase in the first quarter of 2019 principally reflects incremental impact of fiscal 2019 and 2018 acquisitions.
R&D expense increased 20% to $15.2 million in the first quarter of fiscal 2019, and that was up from $12.7 million in the first quarter of fiscal 2018. Significant ongoing new product development efforts are continuing at both Flight Support and ETG as we continue to invest approximately 3% of each sale dollar in new product development. SG&A expenses consolidated increased to $84.3 million in the first quarter of fiscal 2019, and that was up from $75.2 million the first quarter of fiscal 2018. The increase in the first quarter of fiscal 2019 principally reflects changes in the estimated fair value of accrued contingent consideration associated with prior year acquisitions, the impact of our fiscal 2018 and 2019 acquisitions, as well as higher performance-based compensation expense.
Consolidated SG&A expense as a percentage of net sales decreased to 18.1% in the first quarter of fiscal 2019, and that was down from 18.6% in the first quarter of fiscal 2018. The decrease in consolidated SG&A expense as a percentage of net sales principally reflects efficiencies realized from net sales growth, partially offset by previously mentioned changes in the estimated fair value of accrued contingent consideration. Interest expense increased to $5.5 million in the first quarter of fiscal 2019, up from $4.7 million in the first quarter of fiscal 2018. The increase principally due higher interest rates, partially offset by a lower weighted average balance outstanding under our revolving credit facilities. Other income and expense in the first quarter of both years was not significant. Income taxes.
Our effective tax rate in the first quarter of fiscal 2019 decreased to 4.5% from 4.7% in the first quarter of fiscal 2018. Our net income in the first quarters of fiscal 2019 and 2018 were both favorably impacted $0.09 per diluted share as a result of discrete tax benefits. In the first quarter of fiscal 2019, the benefit was $13 million, net of non-controlling interests from stock option exercise recognized in the first quarter of fiscal 2019 compared to the first quarter of fiscal 2018. In the first quarter of 2018, we recognized an $11.9 million provisional discrete tax benefit, or $0.09 per diluted share, primarily due to the remeasurement of our net deferred tax liabilities as a result of the enactment of the Tax Cuts and Jobs Act.
Net income attributable to non-controlling interest was $8.7 million in the first quarter of fiscal 2019, and that was up from $6.5 million in the first quarter of fiscal 2018. The increase mainly reflects the previously mentioned larger tax benefit from stock option exercises, as well as improved operating results of certain subsidiaries of the Flight Support Group and Electronic Technologies Group in which non-controlling interests are held. For the full fiscal year 2019, we continue to estimate a combined effective tax rate and non-controlling interest rate of approximately 26%-28%. Moving on to the balance sheet and cash flow. As you know, our financial position, liquidity, and forecasted cash flow remain very strong. Cash flow provided by operating activities was $49.6 million in the first quarter of fiscal 2019. We continue to forecast strong cash flow from operations for the balance of fiscal 2019.
Our strong working capital ratio improved to 3.5 as of January 31, 2019, compared to 2.6 on October 31, 2018. Our DSO, days sales outstanding of receivables improved to 47 days as of January 31, 2019. That compared to 48 days of January 31, 2018. We continue to closely monitor all receivable collection efforts in order to limit credit exposure. As shareholders know that we have experienced very low accounts receivable losses in the past. We expect the same in the future. No one customer accounted for more than 10% of net sales. Top five customers represented approximately 20% and 18% of consolidated net sales in the first quarter of fiscal 2019 and 2018, respectively. Our inventory turnover rate improved to 132 days as of January 31, 2019, and that compared to 134 days as of January 31, 2018.
HEICO Corporation maintains substantial financial liquidity, which allows us to execute our robust acquisition strategy while aggressively growing our core businesses. We currently have a low level of debt relative to our cash flows, and we believe we are uniquely positioned to swiftly act upon acquisition opportunities that expand our global capabilities and cement our leadership positions in the markets we choose to serve. Looking out to the future, as we look ahead in the remainder of fiscal 2019, we continue to anticipate net sales growth within the Flight Support Group's commercial aviation and defense product lines. We also anticipate growth within the Electronic Technologies Group, principally driven by demand for the majority of our products. During fiscal 2019, we plan to continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy, while at the same time maintaining our financial strength and flexibility.
We are not a financially challenged company. Based on our current economic visibility, we are increasing our estimated consolidated fiscal 2019 year-over-year growth in net sales to 9%-11%, and in net income to be 11%-13%. These are both up from prior growth estimates in net sales of 8%-10%, and in net income of approximately 10%. We continue to anticipate consolidated operating margin to approximate 21%-21.5%, and depreciation and amortization expense to approximate $84 million. Furthermore, we now anticipate cash flow from operations to approximate $370 million, and that was up from our prior estimate of $360 million. We expect CapEx to approximate $43 million, and that's down slightly from the prior estimate of $48 million. Of course, these estimates exclude additional acquired businesses, if any.
In closing, we will continue to focus on our immediate and long-term growth strategies with a laser focus on generating strong cash flow, growing our core businesses, and acquiring profitable businesses at fair prices. That is the extent of my prepared remarks, and I would like to open the floor for questions.
If you'd like to ask a question at this time, press star then the number one on your telephone keypad. Again, that is star one to ask a question. Your first question comes from the line of Krishna Sinha of Vertical Research.
Hi, thanks for taking the call. Couple of questions for Eric and a couple questions for Victor. First for Eric, maybe the industry seems to be seeing some tailwinds from a lack of aircraft retirements and even parked aircraft coming out of storage. Can you maybe comment on whether you're seeing those tailwinds impact your aerospace business and maybe whether you expect that trend to continue and to help some with the organic growth in the medium term?
Hi, Krishna. Good morning. Yes, I'd be happy to answer that. Actually, in sales reviews that I had with our sales folks this week, we probably have been more impacted by retirements as compared to aircraft remaining in service. The answer is, I'm not aware of, in particular, any aircraft that have remained in service beyond what was anticipated a while ago, that have increased our sales. We're being a little conservative, I would say, going forward, and our forward guidance assumes that we're not going to continue to run at this breakneck 13% organic growth. I don't believe that the 13% has been significantly helped by extended life when we look across our customer base.
Okay. That's great. Obviously you recently saw this European Commission arbitration on the engine OEMs, and I know you commented on that and that you don't expect necessarily the engine OEMs to start playing nice immediately. Can you just give us a sense of what would the leading indicator be that would show us that the engine OEM market is starting to open up to you guys a little bit? Is it going to come straight from your results or are we going to start seeing it from MRO shops like Lufthansa and some of these other places? Are we going to start seeing some penetration there? Is there a possibility that you can penetrate into some of the older engine platforms that are perhaps not subject to some of the long-term agreements that the engine OEMs are kind of locking people up on?
Krishna, I think that's a very good question. When we look at what the opportunity is, it's important to remember that the resolution between IADA and the other engine manufacturer, that only takes effect, I believe, tomorrow. However, the resolution is very clear in what's expected in both parties. I can tell you that we've had a lot of very positive discussion with a number of our customers. Our customers have certainly taken note of this and I think are hopeful. I'm hopeful that it will end up inuring to really everybody's benefit. When you look at the PMA potential out there for the engines, this is not going to significantly impact the OEMs. The OEMs will continue to have the majority of the business, and I think are going to do extremely well. We refer to it more as sort of nibbling around the edges.
Their customers want competition. I think that we're providing it in a way that's meaningful for us, not that significant for the OEMs, really won't hurt their business model. To answer your question, I think it first starts with discussions. We need to see where it goes from there. The airlines are very aware of it. They're very intent upon using it to their benefit. I know that we are also having discussions with airlines about how they view the changes in the marketplace and how that could open up certain other markets. I think we will end up seeing it in our results over time. It's something that's going to take a while. We certainly don't have anything modeled in for 2019, and we don't have our budgets yet for 2020.
I think it's more of a long-term situation. The OEMs are very busy with the new equipment that's coming out. They've got their hands full with this. If they lose a very small percentage due to competition, I think that's a heck of a lot better for them than the airlines, their customers, getting very upset at them and going after them in other ways that can be far more damaging. I would say that we're hopeful. We hopefully will start to see it, not this year, but down the road in our results.
That's great. Maybe just a couple of follow-ups for Victor. On ETG, another strong quarter for organic growth. I believe a few quarters ago, you had mentioned that sometimes you get these big organic growth quarters due to a bit of pull forward in a hot demand environment. Is that what we're seeing again this quarter? Specifically, too, you called out aerospace, defense, and space as being the three main contributors there. I guess that's understandable given how those end markets are trending. The other industrial segment, which is also a big piece of your sales mix in ETG, what's the demand in that part of the end market? Is that helping? Can you just give us a sense of what's happening in that end market over the last 12 months?
Yeah, Krishna, those are good questions. The answer is there's no pull forward, nothing out of the ordinary in the quarter. In terms of the other markets that we serve, they're healthy. I don't think there's anything particularly notable out of them. They weren't as high growth organically as the other markets that you mentioned, and we mentioned. They were certainly very good. We're very happy with them.
Okay, great.
We expect them right now, based on the orders we have, we expect to see more of the same. Now, in terms of the organic growth over the rest of the year and the growth levels over the rest of the year, the guidance that we just gave is, of course, what we have for you.
That's great. I'll leave it there and open it up. Thanks, guys.
Thank you.
Your next question comes from the line of Robert Spingarn of Credit Suisse.
Hi, good morning.
Good morning, Rob.
I wanted to stick with some of this organic growth topic and maybe follow up on some of Krishna's questions. This applies to both segments. You do seem to be outpacing end market growth, or at least average end market growth in commercial aero, et cetera. Other companies are putting up some strong aftermarket, too. I'm just wondering, how do we think about this growth? Is there a benefit from new product introduction? I think you mentioned that earlier, Larry. Or is there a share gain? Are you taking some share in addition to just the volume growth from normal expansion in the markets? That really is both for Victor and for Eric in both of your businesses.
Yeah. From 30,000 feet, I think it's all of the above. It's a little bit of each. I think, look, they're my sons, but I think Eric and Victor are doing an outstanding job. If you could see the amount of time and travel that they spend all over the country and the world, staying on top of these businesses, they really do an extraordinary job. Let them comment further, but I think it's all of the above. Eric?
Rob, thanks. I'll start out first with regard to Flight Support Group. The new product introductions are very strong. We're doing very well. The pipeline is very full. Outstanding customer interest, getting the product sold. I think we're doing very well. Then as far as increased penetration, yes, I think that that continues, and we anticipate that to continue to build. I would say, over the last couple of years, we had been hit with a fair amount of retirement, and we see that a little bit down the road, perhaps starting to slow a little bit for us. I think whereas some of the other companies who have reported, they really benefit significantly, as you know, by the initial new part stocking of new equipment that's out there.
The initial provisioning.
The initial provisioning, yes. Whereas HEICO does not have that tailwind. Ours is really, our 13% organic growth is just that. It's just going out, blocking and tackling, finding one new part at a time, getting it sold. I think the value proposition is very strong. We're very well respected in the marketplace. Frankly, all of the signs are quite optimistic for us.
Before Victor goes, Eric, a question for you. As the OEMs start to get more involved in the aftermarket, there is some fear that prices will inflate. They will push pricing up for aftermarket parts with their traditional suppliers. Is that beginning to show some opportunity for you? Are you starting to get some customers who come in and express some concern about more price inflation than they have seen in the past, and therefore a greater desire for PMA parts?
Definitely. Yeah. We hear a lot of concern out there from our customers about what the OEs continue to do. When OEs tend to enter the aftermarket, they do not tend to be focused on reducing prices for their customers. They are really intended on getting prices higher. I think that that bodes quite well for us. One of the questions that we have been getting a fair amount in investor conferences recently is, if some OEMs start entering the aftermarket and competing with other subcontractor OEMs, what really happens? Our read of that is that our initial belief is that prices are going to end up going up to the end customer, because as-
manufacturers want to bid and get on new equipment, and if they in fact have to give a piece of their aftermarket revenues to somebody else, we do not anticipate them to just sit idly by. I think the airlines are going to end up paying the bill. Now, having said that, I do not want to make it sound like what we do is easy, because it is anything but. I think while our opportunity is huge and tremendous, the challenges are very daunting. We compete against very large companies. They are very aware when we come out with a product. They do not sit idly by. They take action. They talk to the customers and say, "Oh, you should not buy these guys parts, it is no good." Then, occasionally they respond with price, and it is very hard to get the airlines focused to go do this.
Now, having said that, I think HEICO is really in a very strong position based on our 11,000 PMAs, because there is not a lot of new stuff out there. We are doing a lot of different nomenclature and different products. I think we are in a very good position, but I got to say, it is very hard. This is hand-to-hand combat every day. Nothing comes to us easily. Fortunately, I think we have got this critical mass and the combination with repair and distribution, where we are able to-
put up good numbers.
Thank you for that color. Then Victor at ETG, sort of similar question, but that business is different clearly. Is it volume, the end markets, or is it the new product introductions? Is there an opportunity there where you're taking share from other folks who make similar products?
Hi, Bob. This is Victor. I think it's really a combination of the first two. I think, as well, there is some opportunity to take market share, and our companies are doing that. I would say, though, overall, it is not a market share-taking story. So it's really a combination of new product introductions, getting on programs from historical periods, kind of the good work, the result of the good work, that the companies have done historically, and growth in the markets themselves and growth of the customer's need, as well as, to a lesser extent, the taking of some market share. I would-
Thank you
As we go forward, by the way, Rob, I would anticipate that that should probably be more or less what the mix looks like, at least over the next year or so.
Going forward. Okay. Well, thank you all.
You're welcome. Thank you, Rob.
Thanks, Rob.
Your next question comes from the line of Sheila Kahyaoglu of Jefferies.
Hey, good morning, thank you for the time, and great quarter once again.
Thank you.
Victor, I have two questions for you, if that's okay. First, I guess on the organic growth in the quarter, up 13%, quite strong. You said that order rates were also keeping up. I guess what surprised you most in the quarter, maybe where are you forecasting a bit of conservatism for the remainder of the year?
I don't know if I'd call it conservativism for the remainder of the year. I just, as you know, believe that when we look at this business over time, that it grows organically in the mid-single digits to even low-single digits growth rates. It's just my sense that it reverts to those levels and, kind of across the board, that we would expect to see that. I think this year, defense probably, and commercial aviation will probably be the strongest parts of the business and will have the highest organic growth of our portfolio. The other parts of the business certainly are not doing poorly, and we're pretty happy with them. Again, I always guide people back to looking to the mid-single digits, and if we do better, that's great.
We're certainly shooting to do that and trying, and we've got a lot of great people and a lot of great companies working on it.
Great. Secondly, just on AeroAntenna and Robertson, they seem to have worked out pretty well for you. Maybe if you could just give us an update on where you are on those businesses, how they've grown over the last two to three years since you've acquired them or, just an update on that, if that's possible. Thank you.
Yeah. They're both doing very well. We are extremely happy with both of those companies. We have wonderful teams. They are wonderful people. Again, that's an example of continuing to innovate on new products. In the case of Robertson, not only on the defense product, but on commercial product, which has been very successful. When we bought the business, although they were working on it and they told us that they thought they would be successful with it, we actually in our own internal modeling, put that at zero. So that has been a nice upside for us.
AeroAntenna has been successful on a number of both commercial and military products and winning new programs, in addition to very strong growth in the existing programs there, as well as, I would say flawless or near flawless execution on meeting customer demand and doing so on responsive turn times and at very fair prices, which by the way, is also very important to us, to deliver very fair value to our customers. It's always a competitive market out there, and we know we have to remain competitive and keep our pencil sharp.
Thank you. Thanks a lot.
You're welcome.
Your next question comes from the line of Ken Herbert of Canaccord.
Hi. Good morning.
Good morning, Ken.
Eric, I just wanted to start off with you. Again, sorry to keep pushing on the growth question, but I wanted to get at it from maybe a different angle. You obviously didn't mention repair and overhaul when you highlighted specifically replacement parts and the specialty products. Was there much of a difference in the organic growth in the quarter between the three segments within FSG or anything that stood out as particularly strong within those?
Yes. Good morning, Ken. The repair group actually went backwards a little bit in terms of revenue for the quarter, but that's not unusual. The repair business can be very lumpy, and it can be very seasonal. November and December are short months. Historically, they're the low months, so it's not something which concerns us. Then at other times of the year, repair and overhaul way outperforms. The answer is, I think we're doing extremely well in repair and overhaul, as well as within parts and specialty products. I think that by the time the year is done, they're all going to end up in a similar area.
Okay. That's helpful. As I think about that, I know that a lot of the material volume that goes into the repair and overhaul business you have is your own parts or a lot of it. I know typically, your growth is virtually all volume versus price. I can imagine you do certainly get some price when I think about the distribution business. Is it fair to say that this quarter price was, considering volume in the repair and overhaul was down, price was maybe a little bit better of a tailwind than it's been in prior quarters? In the broader context, I know it's the majority volume, but was price maybe a little bit more of a factor for you in the growth this quarter?
No, actually, the 13% was pretty much all volume. When you think about it compared to other people in the market, 13% or say 12%-13% is probably volume. That's tremendous. Price is still, we're very conservative on that. We want to make sure that we deliver very good value. It was really just volume increase.
Okay. That's helpful. Very good. If I could, Victor, just one for you. We're all expecting a defense budget here in the next week or two. As you look at the fiscal 2020 budget, are there any particular areas you're particularly focused on or any particular programs that, I know you've got a very broad base of business, but any particular programs that are needle movers or particularly relevant for you as you think about the fiscal 2020 budget?
Ken, this is Victor. That's also a good question. At this point, no. We'll see when it comes out. Like you said, that broad base that we have is part of our strategy. I think as a rule of thumb, there's nothing in particular that I'm aware of which will be important to us, but that could change.
Okay, great. Just finally, one for Carlos. You obviously brought down the CapEx spend, it looks like by $5 million for the full year. Anything in particular there, Carlos? Is there any particular areas where you're maybe slowing investment, or is it a timing, or how should we think about that?
No, we're not slowing investment, Ken. Thanks for the question, by the way. Our spend in Q1 was a little bit lighter than what we had anticipated, frankly, it's not from a lack of buying equipment and our subs getting what they need. It's just they're very frugal. As I've talked to you in the past, we tend to see our subsidiaries buying a lot of used equipment when they can, and they tend to underspend their budget. Taking that into consideration and looking at what was spent relative to budget in Q1, I felt like for the full year, we're probably going to be a little lighter than our initial guess, if you would. No, no big changes. We're not slowing anybody down in the field with their customers.
We continue to supply everything they need, this is just a refinement, if you would, based on the Q1 activity.
Great. Thank you very much.
You're welcome.
Your next question comes from the line of Larry Solow of CJS Securities.
Great. Thanks. Most of my questions were answered. Just a couple of follow-ups on Robert's question on the new product introductions in FSG. Eric, has the amount of new products, has that changed much from sort of that 500 new ones a year, and has the mix or anything like that changed at all, really with those towards a certain grouping or?
Yeah. No, I wouldn't say that anything has changed. The numbers are very consistent with where they've been in the past. We continue to broaden the types of products we do, but I would say it's all very consistent with what we've done historically.
Okay. The amount, it's still about the same on annual basis, right?
Correct.
Yeah. Okay.
Yeah.
Just on the CapEx, I know you lowered numbers a little bit, still some pretty decent amount of spending, and it was up last year, too, sort of relative. It had been running for, I think, a couple of prior years, around $30 million, even lower than that before that. Maybe just give us just a little color on what some of the extra growth capital spending or what are some of the bigger projects out there that you're spending some money?
Larry, this is Carlos Macau. How are you doing?
Good.
If you think about it, we've done, gosh, six acquisitions over the past 12 months. When we take on these businesses, we do have new CapEx requirements, which is going to be incrementally more than what we had last year. I don't think there's anything that you could point to in our pipeline of CapEx budgeting. Roughly half of the budget is maintenance, half is growth, which has been a pretty consistent pattern for the past several years. I don't see anything unusual or large in the budget. It's kind of normal stuff.
Okay. Carlos, while I got you, I know this will be in the queue some more too, margins in the two respective segments were, I think, sort of flattish year-over-year on a reported basis, despite the material revenue growth. I imagine a lot of that is due to just the acquired amortization with tangibles. Do you just happen to have a rough ballpark how much that impacted the quarter?
For amortization?
Yeah, exactly.
Yeah, I do. We probably had incrementally, in amortization, about a half a million dollars more in expense.
Okay.
This quarter than last year.
All right. Okay. Just this last question, obviously, really rapid growth in the quarter. Not an easy comp either. I know your guidance obviously incorporates some slowdown. Just on a more high-level basis, are you guys seeing any signs of a slowdown, whether it be lead times to suppliers or from customer conversations or anything?
Look, I'll let Eric and Victor address that for their segments. From a guidance perspective, as Eric mentioned earlier, we're not planning on continuing a breakneck pace of 13% organic growth.
Absolutely. Right.
We do see a lot of optimism at the subsidiary level, which pushes our guidance, which lends to how we report guidance to you guys. It feels a lot like last year, in that regard. The business environment is very good. Our subs are optimistic. Our end markets are very strong, and so we're cautiously optimistic for the rest of the year that it's going to be very similar to prior years as far as growth goes. I'll let Eric and Victor address their segments.
From the flight support side, I can tell you that material supply is very tight. There's not much excess capacity out there. I would say it's, in general, tougher to get product than it has been in the past. We continue to be able to meet our commitments, so we're doing fine. Yes, definitely, the market has definitely tightened up, and with the focus in particular on the new narrow body engines, I think a lot of the suppliers of older products are sort of less focused in that area. Of course, that's where our focus is, and I'd say that's probably another reason why we're hopeful for our business set in the future.
We're sort of focusing in an area that is a bit of a pain in the neck for our competitors, and I think we're able to serve the market, and in many cases, they're okay with that.
Okay, great. Thank you. I appreciate that.
Thank you.
Your next question comes from the line of Peter Arment of Baird.
Hey, good morning. This is Asher Carey on the line for Peter.
Good morning.
Hey, great results. Victor, maybe if I could just touch on the space market. A lot's been discussed, you're clearly seeing strength, there seems to be a lot of investing going on. If you would, could you talk about some of the puts and takes, some of the changes from the weaknesses you talked about in the past, and the visibility you're seeing in the commercial and defense sectors, GEO, SAT? Curious if you made any shifts to your mix exposure. Just how should we think about that area going forward?
Yeah, look, space was good for us in the quarter. We had organic growth in commercial space in the quarter. I think as I said on the last conference call, commercial space has remained overall pretty good for us. I guess we had to call out what was the weakest link, if you will, arithmetically, it was space, within space, it was specifically the GEO satellite market. That was last year. I don't think the GEO satellite market has recovered. We're not projecting a recovery in the GEO satellite market. The rest of our space business is doing well, both commercially and in defense. We expect to continue to do well there. We like those markets. We're watching to see how things settle out in this new world, if you will, with new space.
Right now, our companies are addressing both markets as appropriate. They're doing it very carefully, I think they're doing it very sensibly.
Great. Thanks, Victor.
Thank you.
Your next question comes from the line of Louis Raffetto of UBS.
Hey, good morning, everyone.
Good morning.
Just back, I think, to Larry's question about margins. Just want to make sure, and I know Larry sort of covered this, but was the headwind to segment margins about the $2 million from the increase in accrued contingent?
Louis, good morning. This is Carlos.
Hey, Carlos.
There was a drag on the margins for changes in accrued. We had some outperformance at a subsidiary that is eligible for an accrued earn-out this year. We had to adjust that this quarter. I would say, though, that was overshadowed by a bigger benefit relative to our leverage on fixed SG&A costs. As we're growing revenues at this pace, we're not expanding our overhead and our SG&A spend, we are getting some leverage there. While that was a little bit of a headwind for the accrued contingent consideration, it was more than offset by that leverage we're picking up on our fixed costs.
Oh, yeah. No, definitely. I just wanted to make sure of that. The number on the cash flow statement was about $1.9 million. I wasn't sure if that was sort of the equivalent of the headwind on the income statement, basically.
Yeah, that's a little higher than what hit the P&L this quarter. I think the change year-over-year was a little bit heavier. I think we had about $1.2 million in adjustment for all of our accrued contingent considerations. Some of that's discounting related to all of our longer-term earn-outs, the bigger one was due to performance and the subs being a little better than we anticipated.
Yeah. A good thing in the long run, right?
Absolutely.
Eric, I guess for you, so it's nice to see Specialty Products sort of back on the right track following a couple of years of different things. Anything you can give us about what's in Specialty Products that's doing particularly better, I guess? Or is it just lack of headwind, I guess?
Yeah. The headwind that we had in Specialty Products was a number of years ago, and that was really some industrial product where we've moved out of that market now. I would say our strength is in all of the aerospace and defense stuff that we're doing, both commercial and military, as well as some space product there. It's very strong. It's doing very well. I expect it to continue to do very nicely.
All right. Sounds good. Just sort of sticking with that for a second, given some of the supply chain issues we saw in commercial space last year, and you guys don't play on the OEM side for the most part, were you approached by anybody about given your ability and your skill to step in at all?
Yeah. We're approached all the time from our customers to take on more work, and I think that that's one of the things that's reflected in the 13% organic growth. Yes, our Specialty Products business does do work with OEMs, and I think we've got a very good position with those OEMs where we treat them very well, we support them extremely well, and we're picking up additional product. I would anticipate that would continue.
Larry, I know you sort of probably covered it in your initial remarks, I guess commentary on the M&A environment?
I think the M&A environment is what I would call normal. We have a number of prospects in the works. I can't predict whether we will close because you never know until you get to the closing table. I would assume that in the near future we might be able to close something. I never know until it's closed. I would say it's normal. I think in general, prices are high. We are very disciplined that we're not going to play in the 14x EBITDA range. We watch very carefully. I think one of the reasons that we have been successful is our deployment of investment capital, and I think we've done it wisely at prices that permit us to have accretive acquisitions. Each acquisition that we make pays for itself, and we're going to continue in that process.
I think the outlook for M&A is pretty standard, and it's fine.
Okay, great. Thank you, guys.
Your next question comes from the line of George Godfrey of C.L. King.
Thank you. Both my questions got answered. I'll add my congratulations on another great quarter.
Thank you.
You're welcome, Larry. One question for Eric. The opportunity in engines in the European Union, you said you would nibble around the edges. Is that both literally and figuratively meaning that parts of the engine you won't touch, or would you look at the entire engine opportunity? Is the margin profile of providing those parts versus the other components on the plane higher or lower? I'll leave it there. Thanks.
George, great questions. I think the margin opportunity in terms of percentage is fairly similar. Our expertise is in a certain area, and I would anticipate we continue to focus in that area. In general, we do expendables, parts which are replaced typically at every shop visit or at most shop visits. We also do certain repairables as well. I think we're going to continue to focus in those areas. We don't do limited parts. That really is the bread and butter for the original equipment manufacturers. When I'm speaking about nibbling around the edges, I'm talking about doing all sorts of products.
There are many products that are sort of a pain in the neck for the OEs to mess around with and support, where you've got a lot of different part numbers, and you've got to support them, and it's sort of erratic or inconsistent use by the customer. That's really the stuff that we focused on. What I meant was the OEs can continue to focus on their bread and butter. They're going to continue to make a majority of the profit associated with those. I think it's enough to satiate HEICO, and where we can do very well, and our customers can get meaningful savings. The OEMs will continue to generate very good margins, and they're not at risk to their business model whatsoever. I think that's sort of the world in which we're looking. Of course, they want to try to maintain everything.
I get that. That's not always practical. If they try to go down that road where they maintain everything, then you get into a situation where the customer really gets upset because there's no outlet. At least by having HEICO in there, we're able to generate some savings, generate some competition. The airline's happy. It doesn't significantly impact our competitor. We're happy. Pretty much everybody wins. That's sort of what I meant by that comment.
Understood. Thank you. Thank you for my question, Eric.
You're welcome. Thanks, George.
The next question comes from the line of Michael Ciarmoli of SunTrust.
Hey, good morning. This is Jorge Pica on for Mike. I guess a lot of the questions have been answered, but I have one that I guess is a near term, just question that has come from investors, and that revolves around the aircraft lease portfolio of General Electric. Now that you have the potential of that spinning off into private equity hands, how do you think about that opportunity?
We think it's really only upside for us. I think you're right, that because they were in the leasing business and in the engine business, they were really the ones who drove this. I think a lot of the resolution with the European Commission addresses these points. A lot of other leasing companies have viewed it as a competitive advantage to permit the use of alternative material. We've got many examples where the world's biggest lessors do permit the use of HEICO parts. I think that this is something that will continue. I don't know whether private equity or somebody else is going to buy that business. I think that as long as it's done in an arm's length basis, there would be very good opportunity. In our opinion, there's no reason why a lessor would restrict.
This is something that was created by one lessor for obvious reasons, we see the tide moving in the other direction. Again, it will take some time to be able to do that, and it is important that the airlines negotiate with their lessors to get relief to be able to use alternative parts so they're not put at a competitive disadvantage. Certainly, if a leasing company does not want to permit the use of alternative parts, then they need to have a materially lower lease rate to offset the damage that they're causing to their lessees. Most lessors don't want to do that. We think the opportunity would be very good for us.
Okay. Excellent. I guess my last question just revolves around additive manufacturing. We talked about how the pricing environment, especially for OEs coming into the aftermarket, is not necessarily beneficial to the end item user. It seems like that from the OE perspective, there is a very heavy push into additive manufacturing, lightweighting of parts, and multi-metal printing. That seems to lead to a conclusion that R&D will have to go up for any of the aftermarket providers. Can you provide any color to that? That's my last question. Thank you.
Sure. Well, a couple of things. We've been using 3D printing for, I don't know, 25 years. We're extremely familiar with the technology. We used it largely in tooling and in making prototypes. You're right, that recently, over the last couple of years, some of the manufacturers have been using it in newly certified applications. We believe that when it comes time, that we will definitely have the technology to be able to produce an interchangeable part. We think that it's fairly limited in terms of the market product that we provide. I don't think a lot of what we make is going to be 3D printed. There's a very famous example of a fuel nozzle part, which we actually don't make. That makes sense to eliminate the number of detail parts and you can 3D print it.
I think there will be a number of examples. I think when it comes time for HEICO to enter that market, we will be completely prepared, and I do not anticipate a large capital expenditure to be able to do this. There are a lot of companies out there offering 3D printing services. Some of those companies have been bought. They've been more for trading than they have been for actually doing business. We have not purchased any of them because we didn't think it was wise, and I think that's probably proven to be the correct, or it's definitely proven to be the correct, position to take. The capacity exists, and we will be there. Then, again, to be clear, we do not believe that airlines will be printing in significant quantities or even material quantities replacement parts.
There may be a couple of one-off things here or there, but this is not going to be a large opportunity. Certainly not for the next many decades. We're watching it, we're right on top of it, and I don't anticipate any disruption for us.
Thank you.
Thank you.
Your final question comes from the line of Josh Sullivan of Seaport Global.
Good morning.
Good morning.
We see the push by the OEMs and others to get deeper into real-time analytics. Just interested to hear if any of those business models are matriculating into HEICO's outlook in any way, either internally or externally.
We're familiar very much with the analytics. Most of what we provide would not be impacted by them. We think that our business of providing products and services is sort of where we want to be. I don't want to rule out doing anything. If we find a business that's good in the particular area, again, we're very familiar with those models. If we find something that makes sense where we can get decent returns and provide good value to our customers, we'll definitely go out and do it, and analytics would definitely fit that category.
Okay. Got it. I guess it's just fitting I'll end on a PMA question here. I understand the conservatism and I think your investors appreciate that. Again, just looking at any cracks in the dam. There's some reports that maybe Latin American airlines are more open to PMA. They're just wondering if you're seeing any specific regional areas looked to take up PMA before any others.
Well, of course, since our competitors are on the phone call, we're a little sensitive about providing specifics in terms of customers, geography, products. I can tell you that we're doing very well globally. We're all around the world. The value proposition is the same. When fleets mature, they become very expensive to operate. That's really our sweet spot. We continue to be extremely active and we're really active in every region of the world, making sure that people know what we can bring to the table. I say we're doing quite well in all the regions.
Got it. Thank you.
Thank you.
Thank you, Josh.
There are no further questions at this time. I'll turn the call back over to management.
Thank you very much, and thank you to everybody who's on this call, and for your interest in HEICO. As you all know, management remains available to you. Give us a call if you have question or comment. We will be around. We look forward to speaking to you after our second quarter is released, that call will be sometime towards the end of May. For those of you up north, brave the rest of the winter. To those of you in South Florida, enjoy the weather. That is all that we have for today, and we'll talk to you soon.
This concludes today's conference call. You may now disconnect at this time.